list of reits to buy

8/6/2019 List of Reits to Buy

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Singapore - Real Estate

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Figure 3: Singapore REITs summarySectors Predominantly Singapore assets Cross-border REITS

Office CapitaCommercial Trust (CCT)

KREIT Asia (KREIT)

Suntec REIT (Suntec)

Frasers Commercial Trust (FCOT)

Retail CapitaMall Trust (CMT) CapitaRetail China Trust (CRCT)

Starhill Global (Starhill) Fortune REIT (Fortune)

Frasers Centrepoint Trust (FCT)

Lippo Mapletree Indonesia Retail Trust

(LMIRT)

Industrials Mapletree Logistics Trust (MLT)

Indiabulls Properties Investment Trust

(IPIT)

AREIT Ascendas India Trust (AIT)

Sabana REIT (Sabana)

Mapletree Industrial Trust (MINT)

Cache Logistics Trust (Cache)

AIMS-AMP Capital REIT (AAREIT)

Cambridge Industrial Trust (Cambridge)

Hospitality CDL Hospitality Trust (CDLHT) Ascott Residence Trust (ART)

Healthcare Parkway Life REIT (PLife) First REIT (First)

Residential Saizen REIT (Saizen)

Source: IIFL Research

In 2010, the S-REITs marginally outperformed both the broader STIindex and the ST Real Estate Index by ~1%. This asset segment is stillattractive, trading at 3.4% one-year-forward spread over 10-year

government bond yield and offering much higher yield compared tomost other bond-like instruments in Singapore. S-REITs current

valuation is undemanding, with average P/B ratio below its long-termhistorical average.

Figure 4: Spread of 1-yr forward yield on S-REITs over 10-yr government bond yield

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Source: Bloomberg, IIFL Research

Figure 5: Historical average P/B trend for S-REITs

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Rising interest rates do pose a risk to the REIT sector, which will affectour dividend discount model (DDM) valuation. We note that at times ofrising interest rates, S-REITs tend to underperform the STI Index. Our

valuation now uses 7.257.75% discount rate, implying risk-free rate of2.75%. Assuming a 50bps rise in interest rate on stocks under ourcoverage, fair values will change by approximately ~10% in end-2011.

Figure 6: Underperformance of REIT during rising interest rates

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REIT Performance FTSE STI 3-mth sibor (RHS)

(%)(Index)


Bottom-up stock picking: We identify 10 key parameters to select themost attractive Singapore REITs on a risk/reward basis over the next 12months. We conclude that hospitality is the most attractive sector,followed by Retail and Industrials. CDLHT ticks most boxes, followed byFCT and Cache, then CMT, Stahill, and MINT. Fortune REIT also looksattractive, though there are some corporate governance concerns on itsdilutive acquisitions done in 2009.

Figure 7: Key summarySummary Parameters Preferred Sectors Stocks

Investability

Ample liquidity (>

US$1m in daily

turnover value)

Office, Retail, Hospitality,Industrial

Lower risk profile

No currency risks,

sector defensiveness,

low gearing level

(4% pa)

Hospitality, Retail

Acquisition growthAcquisition potential

within 12 months

Hospitality, Industrial,

Healthcare

Compelling valuation

Yield attractiveness

(>5%), P/B valuation

(


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Figure 8: Average daily traded value

8.7

6.8

4.7

2.9

1.20.0

2.0

4.0

6.0

8.0

10.0

Office Retail Industrial Hospitality Healthcare

(S$ m)


Lower risk profile: We identify risk profiles in three categoriescurrency risks, sector defensiveness, and low gearing level. Retail andhospitality has the lowest risk profile, followed by the industrial sector.

FCT, CDLHT, and Cache came as the three winners in this category.

On currency risks, we note that most SREITs use forward-hedgingstrategy for their distributions, but not all. For their balance sheet, mostS-REITs use natural hedging by borrowing money in the local currency,although some might not hedge at all, given differences in cost of debtin each country. This risk could hinder investors from investing in cross-border REITs.

Figure 9: Cross-border REITs forex risksP&L Hedging B/S Hedging

CRCT X Partly NaturalFortune X Natural

LMIRT X

IPIT X Natural

AI Trust

ART X X

First X X

Saizen X Natural

Source: Company, IIFL Research

On sector defensiveness, we prefer hospitality, retail, and industrialsectors over office and residential. Oversupply in the office space andunattractive valuations are the main reasons for our cautious view. Theonly residential REIT is Saizen REIT, which lacks visibility, given itshighly-levered balance sheet and poor growth profile.

On gearing (debt to deposited assets), the Singapore REIT guidelineslimit gearing level of up to 35% level, with allowance to reach 60% if acredit rating is attained. So far, none of the cross-border REITs havecredit ratings. Healthcare and hospitality REITs have the lowest gearinglevels among other sectors. A conservative gearing level prevents REITsto reach stagnant growth during market downturns where cost ofissuing equity is too high to finance acquisitions or asset enhancements.


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Figure 10:Gearing levels for each sector

33% 32% 31%28% 27%

0%

5%

10%

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Office Industrial Retail Hospitality Healthcare


Organic growth: Healthy organic growth can be achieved via rentalreversions or asset enhancements. In the case of office sector, rentalreversions are negative in 2011, unattractive vis--vis retail orhospitality sector. The industrial sector, in general, shows inflationarygrowth, slightly behind the hospitality and retail sector. Assetenhancements are sometimes immaterial and could take a long time toaffect distributions, but they are good indicators of managements pro-activeness in delivering optimum returns on their assets. CRCT, CMT,FCT, Fortune, MINT are the best-positioned in this category.

As illustrated in the figure below, Cache, FCOT, AIT, PLife, and ART alsolook attractive in view of their recent acquisitions, and developments

will start contributing into distributions per unit (DPU) over the next 2-3years.

Figure 11:FY10-FY13ii DPU growth

(25) (20) (15) (10) (5) 0 5 10 15

AAREIT

LMIRT *

KREIT

Suntec

First

Sabana *

CCT

Cambridge

AREIT

Starhill

CRCT

MLT

Fortune

ART

MINT *

FCT

Plife

AIT

CMT

FCOT#

CDLHT

CACHE *

(%)

Source: Company, Bloomberg, IIFL Research. * - FY11-FY13; #FY10-FY12


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Acquisition growth: Given higher asset yield and current low cost ofdebt, hospitality, industrial, and healthcare REITs are the winners interms of acquisition potential within the next 12 months. In addition,

most of their mandates are not limited to only Singapore, and thus havethe potential to look for higher-yielding assets in Australia, China, orJapan. In the office sector, low cap rate (~3%) could hinder REITs toacquire assets in Singapore. Limited deals and high sellers expectations(~4-5% cap rate) will also make it more difficult for retail REITs toacquire retail assets in Singapore, unless they are sponsors pipelines(in case of FCT from F&N and CMT from CapitaMalls Asia). We notethat CDLHT has also been active in the region for more acquisitions thisyear.

Figure 12:Hospitality and Industrial have the most acquisition potential

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8.0%

Office Retail Industrial Hospitality

Cost of debt Acquisitions Fees Other Fees Yield spread

3% cap rate5% cap rate

7% cap rate 6.5% cap rate


Compelling valuation: This category consists of three parametersyield attractiveness (>5% yield),


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Figure 13:REITs selection criteriaStock No currency

risks

Ample liquidity

(> US$1m in daily

turnover value)

Sector

defensive

ness

Low

gearing

level(4% pa)

Asset

Enhancement

Acquisitions

potential

(within 12months)

Yield

attractiveness

(>5%)

1Y unit price

performance

(less than20%)

P/B

attractiven

ess (


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Stock No currency

risks

Ample liquidity

(> US$1m in daily

turnover value)

Sector

defensive

ness

Low

gearing

level(4% pa)

Asset

Enhancement

Acquisitions

potential

(within 12months)

Yield

attractiveness

(>5%)

1Y unit price

performance

(less than20%)

P/B

attractiven

ess (


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Stock Share Price/NAV DPU Yield DPU Growth Gearing Avg Daily

Price FY10 FY11 FY12 FY13 FY10 FY11 FY12 FY13 FY10-13 (Debt/Asset) Liquidity (SGD$ mn)Lippo-Mapletree Indonesia Retail Trust 0.55 0.66 0.00 4.70 4.20 4.00 8.55 7.64 7.27 7.27 -7.7% 13% 0.6

Total Retail 1.06 9.48 10.07 11.03 11.71 5.56 5.73 6.26 6.26 5.8% 31% 6.8

Industrial REITs

Mapletree Logistics Trust 0.95 1.11 6.09 6.40 6.60 6.70 6.77 6.98 7.09 7.09 3.2% 38% 2.1

A-REIT 2.12 1.32 13.83 13.90 13.90 14.60 6.56 6.56 6.89 6.89 1.8% 35% 9.6

Indiabulls Properties Investment Trust 0.27 0.49 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0% 7% 0.0

Sabana REIT 0.98 0.98 0.00 8.40 8.50 8.30 8.62 8.72 8.51 8.51 -0.6% 24% -

Mapletree Industrial Trust 1.08 1.26 0.00 7.10 7.60 7.90 6.85 7.41 7.96 7.31 5.5% 38% 6.3

Ascendas India Trust 0.99 1.09 6.77 6.80 7.60 8.50 6.90 7.72 8.63 8.63 7.9% 19% 1.2

Cache Logistics Trust 0.98 1.07 0.00 6.70 8.20 8.40 6.84 8.37 8.57 8.57 12.0% 24% 1.4

AIMS-AMP Capital REIT 0.22 0.76 4.67 2.00 2.10 2.20 9.30 9.77 10.23 10.23 4.9% 33% 0.7

Cambridge Industrial Trust 0.53 0.91 0.00 4.90 4.90 5.00 9.33 9.33 9.52 9.52 1.0% 41% 1.4

Total Industrial 1.12 6.44 8.40 8.64 9.00 6.48 7.35 7.67 7.57 3.3% 32% 4.7

Hotel REITs

CDL Hospitality Trusts 2.05 1.35 10.20 11.80 12.50 13.30 5.76 6.10 6.49 6.49 9.2% 20% 3.6

Ascott Residence Trust 1.21 0.95 7.54 8.10 8.50 8.80 6.69 7.02 7.27 7.27 5.3% 39% 1.8

Total Hotel 1.18 9.12 10.29 10.87 11.47 6.14 6.48 6.81 6.81 7.6% 28% 2.9

Healthcare REITs

First REIT 0.76 0.99 6.63 6.40 6.50 6.50 8.42 8.55 8.55 8.55 -0.7% 9% 1.1

Parkway Life REIT 1.80 1.28 8.79 9.90 10.40 11.00 5.50 5.78 6.11 6.11 7.8% 35% 1.2

Total Healthcare 1.19 8.13 8.84 9.21 9.63 6.39 6.62 6.85 6.85 5.2% 27% 1.2

Residential REITsSaizen REIT 0.17 0.01 16.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -100.0% 37% 0.2

Total Residential 0.17 0.01 16.25 - - - - - - 0.00 -100.0% 37% 0.2

Total Sector (MV Weighted) 1.05 8.08 8.84 9.28 9.63 5.87 6.19 6.36 6.33 3.4% 31% 6.1

Source: Bloomberg, IIFL Research. Price as at close on Feb 7th

2011


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Figure 15:SREITs price performanceBloomberg 52 Wk 52 Wk 1 Wk 1 Mo 3 Mo 6 Mo YTD 1Y

Office REITs

CapitaCommercial Trust CCT SP 1.00 1.57 2.05 (1.97) (0.67) 8.76 (0.67) 44.66

K-REIT Asia KREIT SP 1.03 1.46 (0.71) (2.10) 0.72 19.66 (0.71) 32.08

Suntec SUN SP 1.22 1.64 4.46 7.19 6.49 17.99 9.33 30.16

Frasers Commercial Trust FCOT SP 0.65 0.88 NA 4.24 1.18 14.67 4.24 18.62

Total Office 1.06 1.54 2.28 1.56 2.21 14.34 3.11 35.85

Retail REITs

CapitaRetail China Trust CRCT SP 1.06 1.33 (1.57) 0.81 (5.30) 0.81 0.81 9.65CapitaMall Trust CT SP 1.71 2.16 (3.59) (5.53) (6.00) (3.09) (3.59) 8.67

Starhill Global REIT SGREIT SP 0.52 0.66 1.55 3.97 6.50 14.91 4.80 21.30

Frasers Centrepoint Trust FCT SP 1.22 1.60 0.65 0.65 3.36 9.22 2.67 19.38

Fortune REIT FRT SP 2.92 4.18 (0.73) 2.27 (0.49) 10.03 1.50 37.16

Lippo-Mapletree Indonesia Retail Trust LMRT SP 0.42 0.58 0.00 (2.61) 2.75 17.89 5.66 16.67

Total Retail 1.52 1.98 (1.90) (2.35) (2.44) 3.11 (0.59) 14.70

Industrial REITs

Mapletree Logistics Trust MLT SP 0.75 1.00 0.00 0.00 4.37 11.01 (1.04) 23.90

A-REIT AREIT SP 1.81 2.29 (0.47) (2.31) (2.31) (2.76) 1.93 6.03

Indiabulls Properties Investment Trust IPIT SP 0.23 0.32 (3.64) (1.85) (11.67) 15.22 (1.85) 3.92

Sabana REIT SSREIT SP 0.93 1.05 (1.02) (0.51) NA NA 0.00 NA

Mapletree Industrial Trust MINT SP 0.93 1.20 0.93 0.93 (1.82) NA (0.92) NA

Ascendas India Trust AIT SP 0.89 1.07 (1.01) 3.16 (2.97) 1.03 5.38 5.38

Cache Logistics Trust CACHE SP 0.88 1.02 (1.51) 2.08 1.55 (1.01) 1.55 NA

AIMS-AMP Capital REIT AAREIT SP 0.18 0.24 0.00 0.00 (2.22) 9.68 0.00 12.23

Cambridge Industrial Trust CREIT SP 0.43 0.57 0.00 (1.87) (4.55) 4.10 (0.94) 16.82

Total Industrial 1.08 1.36 (0.53) (0.61) (1.51) 3.04 0.55 8.62

Hotel REITs

CDL Hospitality Trusts CDREIT SP 1.64 2.24 (2.38) 0.00 (4.21) 2.50 (1.44) 22.02

Ascott Residence Trust ART SP 0.99 1.32 0.83 (1.61) (2.40) 5.83 0.00 7.66

Total Hotel 1.37 1.86 (1.07) (0.66) (3.47) 3.86 (0.85) 16.17


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Bloomberg 52 Wk 52 Wk 1 Wk 1 Mo 3 Mo 6 Mo YTD 1Y

Healthcare REITs

First REIT FIRT SP 0.58 0.77 0.00 1.33 6.75 18.21 7.80 29.96

Parkway Life REIT PREIT SP 1.24 1.81 2.29 5.29 5.29 24.31 8.48 39.84

Total Healthcare 1.04 1.49 1.59 4.09 5.74 22.45 8.28 36.84

Residential REITs

Saizen REIT SZREIT SP 0.15 0.18 0.00 3.03 6.25 9.68 3.03 6.25

Total Residential 0.15 0.18 0.00 3.03 6.25 9.68 3.03 6.25

Total Sector (MV Weighted) 1.22 1.63 (0.12) (0.32) (0.61) 7.01 1.12 19.52

Straits Times Index FSSTI 2,648 3,314 (1.39) (2.35) (3.50) 6.34 (0.16) 18.24FTSI ST REIT index FSTREI 574 700 (0.08) (0.59) (0.79) 5.46 1.17 19.01

Source: Bloomberg, IIFL Research. Prices as at close on Feb 7th

2011

Figure 16:REIT guidelinesSingapore Hong Kong Malaysia

Management structure External Internal / External External

Min Real Estate investments 75% 100% 75%

Foreign assets Allowed Allowed Allowed

Development assets Up to 10% of deposited property ProhibitedProhibited (unless approved by Securities

Commission)

Gearing Limit 35% of total assets (to 60% with credit rating) 45% of total assets 50% of net asset value

Payouts 90% of taxable income (no depreciations) >90% of net income after taxUndistributed income is tax exempted if

payout is >90%

Tax transparency Yes No Yes

Tax concession10% withholding tax for non-resident companies until 17

Feb 2011No

Yes, final withholding tax of 15% (for

individuals & local companies) / 20%

(non-resident institutions) for 5 years

from 2007



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list of reits to buy

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