Sector Overview

The Real Estate Investment Trust (REIT) Sector in our Singapore coverage consists of 25 REITs listed on Singapore exchange with a market capitalization of USD48 billion.

• Majority of S-REITs registered positive DPU compared to a year and a quarter ago
• Proactive capital management and ample liquidity kept refinancing risks at bay
• S-REIT may offer at least 8% price return in 2013 based on another 30 basis points of yield compression given our estimates

Earnings Surprise?

With the exception of four underperforming REITs, majority of the REITs listed on Singapore bourse had turned in positive results by registering better DPU compared to previous year and quarter in CY3Q12. Frasers Centrepoint Trust (FCT) reported one of the best results in terms of y-y and q-q DPU in CY3Q12. The DPU increase was mainly attributable to higher revenue after completion of substantial portion of asset enhancement initiative (AEI) at Causeway Point and full quarter contribution from Bedok Point which was absent in last year.

Capital management outlook

• Liquidity is expected to remain high thanks to Singapore status of being a safe haven and strong Sing-dollar appreciation
• Financial position of S-REITs is in the pink, with comfortable gearing and longer weighted average debt to maturity

Recommendation

We cannot accentuate any further that investors have to be selective in REIT picking as they are no longer “cheap” anymore. S-REIT may offer at least 8% price return in 2013 based on another 30 basis points of yield compression. Including the dividend, investors may look forward to a double-digit total return next year.

In our last update report, we mentioned about Suntec REIT and it has since captured a price return of 15.2% based on the last closing price on 28-Dec-12. At this juncture, we still think that Suntec REIT valuation is undemanding even though Mapletree Commercial Trust (MCT) is related to Temasek Holdings with strong pipeline of properties to be acquired from Mapletree Investment Pte Ltd. Suntec REIT is currently trading at a discount of 15.5% to its NAVPS while MCT is trading at a premium of 28.2%. Not to mention, Suntec REIT offers an attractive yield of 5.6% at current price.

Source: PhillipCapital Research - 31 Dec 2012