Asean REITs shine in the digital economy

SINGAPORE (Sept 6): CIMB Research is maintaining its "overweight" call on Asean REITs which have outperformed year-to-date as investors seek shelter in yield.

With dividend yields of 5.8-6.8%, CIMB lead analyst Lock Mun Yee expects more yield compression with organic or acquisition-led earnings growth prospects.

In a sector note published on Monday, Lock singled out industrial REITs as "most positive" across the region, riding on the growth of e-commerce and consumption.

E-commerce sales as a percentage of total retail sales are set to double from 8.2% in 2014 to 20.4% in 2016, with Asia Pacific becoming the largest worldwide according to eMarketer. In addition, the trend of outsourcing and obsolescence of older warehouses will translate to demand for more modern facilities.

Lock says Thai REITs (T-REITs) are slated to benefit the most from the Asean Economic Community and the e-commerce trend. Thailand’s strategic location at the centre of Asean, along with high cost-competitiveness and large population pool, will drive potential for wealth creation and urbanisation as Asean becomes a manufacturing hub, fueling consumption and e-commerce.

As for growth through acquisitions, Malaysian REITs (M-REITs) and T-REITs currently have the highest potential , according to the analyst, trading at 1.25x to 1.35x price to book value, with lower gearing of 21–32%.

The following are CIMB’s top stock picks:

WHA Premium Growth Freehold and Leasehold REIT (WHART TB)

Being the largest logistics REIT in Thailand, it offers high exposure to the e-commerce sector. New acquisitions that can expand portfolio net liquid assets by 46% are expected in 4Q16. Attractive yield of 6.6% in FY2017, compared to regional average and S-REIT average of 5.2% to 5.5%.

Keppel DC REIT (KDCREIT SP)

Healthy demand should meet incoming supply, with growth powered by new acquisitions. Targeting to double asset under management to S$2 billion by 2018. Still has potential for revaluation gains and acquisitions.

Mapletree Commercial Trust (MCT SP)

Diversification to business parks with Mapletree Business City propels MCT to top six largest Singapore REITs, with expected positive rental reversion and offering a distribution per unit yield of 5.4%.

Mapletree Industrial Trust (MINT)

Built-to-suit projects and redevelopment activity set to drive earnings in FY18 to FY19. Resilient portfolio with positive rental reversions and higher occupancies to offer a distribution per unit yield of 6.2%.

Pavilion REIT (PREIT MK)

Offers a premium quality portfolio anchored by Pavilion Mall in Malaysia, with remixing of tenant at Da:men USJ and two potential acquisitions to drive bottom line. 

Share of KDCREIT, MCT and MINT are trading at S$1.20, S$1.60 and S$1.76 respectively. — theedgemarkets.com.sg

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