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Singapore REITs
Vikrant Pandey
+65 6590 6623
Derek Chang
+65 6590 6614
2
OVERWEIGHT On REITs Sector
• Upcycle yield spreads indicate 23% upside potential. Top
BUYs: AREIT, FLT, CCT and FHT
• Opportunity to invest in REITs at attractive levels as Fed rate
hike expectations dampens share prices
• Singapore Yield Spreads Remain Most Attractive Regionally at
3.88%
• Fixed-rate Debt And Longer Maturities To Mitigate Interest
Impact
• Meagre supply of industrial business park space
• Prefer diversified, deep value REITs with exposure to the
Business Park and Hospitality segments.
3
Singapore Yield Spreads Remain Most Attractive In The
Region
• Upcycle yield
spreads indicate 23%
upside potential
(Current spread at
3.88% vs upcycle
spread of 2.77%).
• 10Y SGS yield
stands at 2.09%.
• We are currently
factoring in a risk-
free rate of 2.5%.
Source: Bloomberg, UOB Kay Hian
Source: Bloomberg, UOB Kay Hian
Regional Yield Spread
Historical Yield Spreads Of S-REITs vs 10Y SGS
as at 22 May 17
REIT Yields (%) 10-Yr Govt Bond Yield (%) Yield Spread (%)
Singapore 5.97 2.09 3.88
Malaysia 5.42 3.88 1.54
Hong Kong 4.73 1.41 3.32
Japan 3.32 0.05 3.26
United States 4.29 2.25 2.04
Australia 4.67 2.49 2.18
4
US Fed Rate Hikes: A Sense of Deja Vu
• Positive US REIT and S-
REIT returns during rate
hike cycles, with the US
REITs (FTSE NAREIT All
Equity Total Return Index)
doubling from mid-04 to
end-06 when US FFTR
rose 425bp from 1% to
5.25%.
• US REITs also gained 3%
during the previous rate
hike cycle in mid-99 to mid-
2000 when FFTR rates
were hiked 175bp to 6.5%
from 4.75%
• Historical gap between US
and domestic interest rates
suggests healthy buffer.
Source: Bloomberg, UOB Kay Hian
Source: Bloomberg, UOB Kay Hian
FTSE US NAREIT Index (RHS) and FFTR (LHS)
FSSTI REIT Index (RHS) and 3M SIBOR (LHS)
0
200
400
600
800
1000
1200
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
3M Sibor (LHS)
FTSE ST REIT
(%)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
0
1
2
3
4
5
6
7
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
FFTR (LHS)
FTSE NAREIT All Eq REIT Total Return
(%)
5
Historical Gap Between US And Domestic Interest Rates Suggests
Healthy Buffer
• An existential average
spread of 73bp since 2002
between 10Y Treasuries and
10Y SGS suggests sufficient
headroom before 10Y SGS
yields follow a rise in
Treasury yields.
• Previous muted FFTR rate
hike impact also suggestive.
In 2004, when a 430bp hike
in FFTR only resulted in a
50bp increase in 10Y
Treasuries.
• We note a similar trend
where 3M SIBOR rose over
200bp between mid-04 and
mid-06, while 10Y SGS
yields remained unchanged.
Source: Bloomberg, UOB Kay Hian
US vs Singapore 10 Year Yield
6
Fixed-rate Debt And Longer Maturities Mitigate Interest Impact
• REITs have largely
locked in 56-99% of
fixed-rate debts.
• Average debt maturity
for S-REITs reached
3.4 years in 4Q16,
approximately double
the debt maturity in
4Q08.
• Longer debt maturities
and high percentage of
fixed-rate debts will
cushion the impact of
rising interest rates.
• S-REITs can opt to
reduce loan tenure
upon refinancing to
benefit from lower
rates for shorter-
duration debt.
Source: Respective companies, UOB Kay Hian
Source: Respective companies, UOB Kay Hian
Weighted Average Debt Maturity (4Q16)
Fixed Rate Debt As Percentage Of Total Debt (4Q16)
Debt Maturity 4Q16 4Q08
Ascendasreit 3.9 2.2
AscottREIT 4.7 2.3
CACHE 2.8 -
CapitaLComm 3.2 2.6
CapitaLMall Tr 5.3 2.4
CDL Htrust 3.0 0.5
FrasersCT 2.6 2.1
FrasersHosp 2.1 -
Kep REIT 3.5 2.3
MapletreeInd 3.2 -
MapletreeLog 3.5 2.5
Plife REIT 3.6 2.8
Starhill Gbl 3.1 1.6
SuntecREIT 3.1 2
Average 3.4 1.7
0%
20%
40%
60%
80%
100%
Plif
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EIT
Sta
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Gbl
Fra
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Map
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CA
CH
E
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0.0
2.0
4.0
6.0
Cap
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all T
rust
Asc
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Asc
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EIT
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RE
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letr
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Sta
rhill
Gbl
CD
L H
trus
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CA
CH
E
Fra
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CT
Fra
sers
Hos
p
7
Sector Highlights
Segment Demand
Ranking
Supply
Ranking
Investment Positives Investment Negatives Stocks
Industrial
1
(Business
park )
1
(Business
park)
Positive rental reversions to offset muted headline rental growth
Upcoming supply of factory and warehouse space largely pre-
committed
AEI, BTS and redevelopment opportunities
Business parks to benefit from spillover office demand
REITs increasingly seeking overseas assets
Sizeable incoming supply
Near-term weakness in business park
occupancies
Further government measures
AREIT (BUY)
FLT (BUY)
Hotel 3 2
Pickup in global economy
Continued growth in visitor arrivals and corporate traffic
High occupancies and stable ARRs
Sizeable incoming supply
Higher labour costs/lower foreign
labour allocation
Strong S$
Increasing competition from
neighbouring countries
Frasers
Hospitality (BUY)
ART (HOLD)
CDREIT (HOLD)
Office 2 3
Limited supply from 2017 onwards.
Singapore Occupancy costs half that of HK (Ranked 20th ).
Demolitions and conversions could remove over 60% of upcoming
supply
Demand to rise on improving macro outlook
Sizeable incoming supply
Difficulty in acquiring properties due to
yield compression in the space
Grade-A rentals to drop ~20% from
1Q15’s peak of S$11.40 psf.
CCT (BUY)
KREIT (BUY)
Suntec REIT
(HOLD)
Retail 4 4
Rentals to remain resilient
AEIs to drive mall performance
Acquisitions from sponsor and third-party pipelines
New and upcoming supply largely pre-committed
Successful retail concepts expanding, new entrants continuing to
enter
Labour curbs
Competition from online retail
Pockets of weakness in suburbs (eg
Jurong East) on larger supply
Starhill (BUY)
FCT (HOLD)
CMT (HOLD)
8
Industrial: Business Park Sole Bright Spot
Outlook:
• Business park & high tech segment to benefit from spillover office demand.
• Flattish rental outlook for factory and warehouse as the market absorbs a larger upcoming supply of new space
• Potential revaluation losses for factory / warehouse landlords on supply-side pressure on rents
Key Trends:
• Single-tenanted buildings seeing increasing
multi-tenanted conversions and landlords
grapple with JTC subletting requirements
• Upcoming supply largely pre-committed
• AEI, BTS and redevelopment opportunities
• Increasing overseas acquisitions
• Risks: Older business park occupancies,
further government measures
Industrial Rents
Source: CBRE, URA REALIS, UOB Kay Hian
Business / Science Park Supply Fully Pre-committed In 2017 And Beyond
Source: A-REIT
1
2
3
4
2Q09 2010 4Q10 3Q11 2Q12 2013 4Q13 3Q14 2Q15 1Q16 4Q16
Business & Science Parks
Hi-Tech
Multi User Factory
Multi User Warehouse S$1.84
S$3.70
S$3.10
S$1.82
(S$/psf pm)
9
Sector Highlights
Segment Demand
Ranking
Supply
Ranking
Investment Positives Investment Negatives Stocks
Industrial
1
(Business
park )
1
(Business
park)
Positive rental reversions to offset muted headline rental growth
Upcoming supply of factory and warehouse space largely pre-
committed
AEI, BTS and redevelopment opportunities
Business parks to benefit from spillover office demand
REITs increasingly seeking overseas assets
Sizeable incoming supply
Near-term weakness in business park
occupancies
Further government measures
AREIT (BUY)
FLT (BUY)
Hotel 3 2
Pickup in global economy
Continued growth in visitor arrivals and corporate traffic
High occupancies and stable ARRs
Sizeable incoming supply
Higher labour costs/lower foreign
labour allocation
Strong S$
Increasing competition from
neighbouring countries
Frasers
Hospitality (BUY)
ART (HOLD)
CDREIT (HOLD)
Office 2 3
Limited supply from 2017 onwards.
Singapore Occupancy costs half that of HK (Ranked 20th ).
Demolitions and conversions could remove over 60% of upcoming
supply
Demand to rise on improving macro outlook
Sizeable incoming supply
Difficulty in acquiring properties due to
yield compression in the space
Grade-A rentals to drop ~20% from
1Q15’s peak of S$11.40 psf.
CCT (BUY)
KREIT (BUY)
Suntec REIT
(HOLD)
Retail 4 4
Rentals to remain resilient
AEIs to drive mall performance
Acquisitions from sponsor and third-party pipelines
New and upcoming supply largely pre-committed
Successful retail concepts expanding, new entrants continuing to
enter
Labour curbs
Competition from online retail
Pockets of weakness in suburbs (eg
Jurong East) on larger supply
Starhill (BUY)
FCT (HOLD)
CMT (HOLD)
10
Hotel: Watch out for supply driven turnaround
Source: CDL Hospitality, Horwath HTL
Source: CDL Hospitality, Horwath HTL, UOB Kay Hian
Hotel Rating Rooms Est Opening
Aqueen Hotel Little India Economy 83 2Q17
Novotel Singapore on Stevens Upscale/Luxury 254 2Q17
InterContinental Singapore Robertson Quay (formerly
Gallery Hotel)
Upscale/Luxury 225
2Q17
Sofitel Singapore City Centre (Tanjong Pagar Centre) Upscale/Luxury 222
2Q17
The Patina Capitol Singapore Upscale/Luxury 157 2Q17
Ibis Singapore on Stevens Mid-Tier 528 2Q17
Destination Singapore Beach Road (fmr Premier Inn) Mid-Tier 300 2Q17
Park Hotel Farrer Park Mid-Tier 300 2Q17
Courtyard Marriott at Novena Mid-Tier 250
2Q17
YOTEL Orchard Road Economy 610 2Q17
Dusit Thani Hotel & Resort Upscale/Luxury 197 1H17
Andaz Singapore (DUO Project) Upscale/Luxury 342 3Q17
Novotel Singapore on Stevens Upscale/Luxury 254 3Q17
Duxton Terrace (formerly Murray House) Upscale/Luxury 138 4Q17
Duxton House (formerly Blakes) Upscale/Luxury 50 4Q17
Grand Park City Hall Mid-Tier 181 4Q17
Aqueen Hotel Lavender (Additional Rooms) Economy 69 2018
The Outpost @ Sentosa Upscale/Luxury 230 2019
Village Hotel Sentosa Economy 620 2019
The Clan Mid-Tier 292 2019
YOTEL Changi Jewel Economy 130 2019
THE EDITION by Marriott Upscale/Luxury 190 2019
Source: STB, UOB Kay Hian estimates
REVPAR, ADR & OCCUPANCY TRENDS
HOTEL ROOM SUPPLY
11
Sector Highlights
Segment Demand
Ranking
Supply
Ranking
Investment Positives Investment Negatives Stocks
Industrial
1
(Business
park )
1
(Business
park)
Positive rental reversions to offset muted headline rental growth
Upcoming supply of factory and warehouse space largely pre-
committed
AEI, BTS and redevelopment opportunities
Business parks to benefit from spillover office demand
REITs increasingly seeking overseas assets
Sizeable incoming supply
Near-term weakness in business park
occupancies
Further government measures
AREIT (BUY)
FLT (BUY)
Hotel 3 2
Pickup in global economy
Continued growth in visitor arrivals and corporate traffic
High occupancies and stable ARRs
Sizeable incoming supply
Higher labour costs/lower foreign
labour allocation
Strong S$
Increasing competition from
neighbouring countries
Frasers
Hospitality (BUY)
ART (HOLD)
CDREIT (HOLD)
Office 2 3
Limited supply from 2017 onwards.
Singapore Occupancy costs half that of HK (Ranked 20th ).
Demolitions and conversions could remove over 60% of upcoming
supply
Demand to rise on improving macro outlook
Sizeable incoming supply
Difficulty in acquiring properties due to
yield compression in the space
Grade-A rentals to drop ~20% from
1Q15’s peak of S$11.40 psf.
CCT (BUY)
KREIT (BUY)
Suntec REIT
(HOLD)
Retail 4 4
Rentals to remain resilient
AEIs to drive mall performance
Acquisitions from sponsor and third-party pipelines
New and upcoming supply largely pre-committed
Successful retail concepts expanding, new entrants continuing to
enter
Labour curbs
Competition from online retail
Pockets of weakness in suburbs (eg
Jurong East) on larger supply
Starhill (BUY)
FCT (HOLD)
CMT (HOLD)
12
Office: Early signs of stablization
* UOB-ETR GDP forecast: 2016F: 2.7%,
Source: CBRE, UOB Kay Hian
Office Supply Demand Occupancy
Office Rental Outlook:
•Preleasing activity showing signs of
stabilization.
Key Trends:
•Grade A office rentals have corrected 21.5%
from the peak to S$8.95 psf pm in 1Q17.
•We opine that Grade A rental decline could
fast be approaching a bottom, especially as
qoq declines have been slowing since 3Q16 (-
2.1% qoq), vs qoq declines during 3Q15-2Q16
(-3.5% to -4.8%).
•Upcoming supply concentrated in 2017 with
limited supply beyond 2018.
•Leasing momentum picking up (Marina One
and UIC Building pre-commitments at
approximately 60% and 50% respectively)
•Nascent demand from firms in TMT sector
(Agoda, Amadeus, Netflix, Booking.com,
LinkedIn, Facebook, Avepoint, Quantium).
75%
77%
79%
81%
83%
85%
87%
89%
91%
93%
95%
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2003 2005 2007 2009 2011 2013 2015 2017F 2019F
Annual Supply Take-Up Occupancy
(%)(sf m)
13
Limited Supply Beyond 2017
• High supply of commercial space to hit the
market in 2017.
• Marina One (1.9m sf of space in 1Q17), has
seen anchor tenant pre-commitment (Julius
Baer, Virgin Active, Cold Storage, Koufu).
Media reports indicate c.35% pre-
commitment while market intelligence places
it at ~50%
• Research from industry consultant Edmund
Tie & Company (formerly DTZ) show that
Marina Bay rents fell 1.8% qoq to S$10.65psf
pm in 4Q16.
• Beyond 2017, core CBD supply remains
meagre at below 0.84m sf pa (Frasers Tower
and redevelopment projects) which should
underpin a pick-up in rental growth.
Period Proposed Project City Area Estimated Net
Lettable Area (sf)
2Q17 Marina One Marina Bay 1,876,000
2Q17 UIC Building Shenton Way 278,000
2017 EON Shenton (Strata Office) Shenton Way 101,000
2017 2,255,000
1Q18 Redevelopment of International Factors Building and Robinson Towers
Core CBD 194,380
2Q18 Frasers Tower Core CBD 645,000
2018 808,000
4Q19 Redevelopment of Funan DigitaLife Mall City Hall 204,000
2019 Park Mall Redevelopment Fringe CBD 352,000
2019 556,000
2020 79 Robinson Road (former CPF Building) Robinson Road 500,000
2020 Afro-Asia Buildings Redevelopment Shenton Way 154,000
2020 654,000
Source: CBRE, UOB Kay Hian
14
Sector Highlights
Segment Demand
Ranking
Supply
Ranking
Investment Positives Investment Negatives Stocks
Industrial
1
(Business
park )
1
(Business
park)
Positive rental reversions to offset muted headline rental growth
Upcoming supply of factory and warehouse space largely pre-
committed
AEI, BTS and redevelopment opportunities
Business parks to benefit from spillover office demand
REITs increasingly seeking overseas assets
Sizeable incoming supply
Near-term weakness in business park
occupancies
Further government measures
AREIT (BUY)
FLT (BUY)
Hotel 3 2
Pickup in global economy
Continued growth in visitor arrivals and corporate traffic
High occupancies and stable ARRs
Sizeable incoming supply
Higher labour costs/lower foreign
labour allocation
Strong S$
Increasing competition from
neighbouring countries
Frasers
Hospitality (BUY)
ART (HOLD)
CDREIT (HOLD)
Office 2 3
Limited supply from 2017 onwards.
Singapore occupancy costs half that of HK (Ranked 20th ).
Demolitions and conversions could remove over 60% of upcoming
supply
Demand to rise on improving macro outlook
Sizeable incoming supply
Difficulty in acquiring properties due to
yield compression in the space
Grade-A rentals to drop ~20% from
1Q15’s peak of S$11.40 psf.
CCT (BUY)
KREIT (BUY)
Suntec REIT
(HOLD)
Retail 4 4
Rentals to remain resilient
AEIs to drive mall performance
Acquisitions from sponsor and third-party pipelines
New and upcoming supply largely pre-committed
Successful retail concepts expanding, new entrants continuing to
enter
Labour curbs
Competition from online retail
Pockets of weakness in suburbs (eg
Jurong East) on larger supply
Starhill (BUY)
FCT (HOLD)
CMT (HOLD)
15
Retail: Challenging Retail Climate
Outlook:
• Muted 0-3% rental growth
• Growth drivers from AEI and
acquisitions
Key Trends:
• Rising Risks: Labour curbs, online
retailing, high supply in Jurong East
• Malls continue to undergo AEIs (CMT:
Tampines Mall, Bugis Junction)
• New potential AEIs to drive future
growth. (CMT: Funan, FCT: Northpoint,
Starhill: Plaza Arcade, Suntec: Park
Mall)
• Successful retail concepts expanding
(H&M, Uniqlo, Tim Ho Wan), while new
entrants enter (Hello Kitty Cafe, Japan
Food Town)
Orchard And Suburban Retail Rents
Source: CBRE, UOB Kay Hian
Rent reversions on a downward trend
-3%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 4Q16
Frasers Centrepoint Tr CapitaLand Mall Tr
(Rental reversions)
16
Prefer Business Park exposure
• Industrial pick –
AREIT, FLT
• Hospitality pick –
FHT
• Office pick –
CCT
Source: Datastream, Bloomberg, UOB Kay Hian
Peer Comparison
Price Target Market Yield Debt to Debt to
Name Ticker Rec Curr 22 May 17 Price Cap Hist Curr Fwd Fwd 2 yr Equity Asset P/NAV
(S$) (S$) (S$m) (%) (%) (%) (%) (%) (%)
HOSPITALITY REITS/TRUSTS
Ascendas-hTrust ASCHT SP NR S$ 0.77 n.a. 867.4 7.4 7.0 n.a. n.a. 53.7 32.2 0.84
AscottREIT ART SP HOLD S$ 1.125 1.15 2,412.9 7.0 5.5 6.4 6.8 90.4 41.1 0.87
CDL HTrust CDREIT SP HOLD S$ 1.615 1.47 1,611.3 6.2 5.7 5.6 n.a. 60.1 36.8 1.05
Far East HTrust FEHT SP NR S$ 0.605 n.a. 1,097.0 7.2 6.6 6.9 7.1 50.3 32.3 0.67
Frasers HTrust FHT SP BUY S$ 0.7 0.74 1,291.9 7.5 7.3 7.3 7.4 56.5 33.2 0.91
OUE HT OUEHT SP NR S$ 0.71 n.a. 1,279.4 6.5 6.9 6.9 7.0 62.4 38.1 0.93
INDUSTRIAL REITS
AIMSAMPIReit AAREIT SP NR S$ 1.395 n.a. 890.9 7.9 8.6 8.6 n.a. 59.6 36.1 1.00
Ascendas Reit AREIT SP BUY S$ 2.59 2.75 7,469.4 6.1 6.3 6.3 n.a. 57.1 33.8 1.26
Cambridge CREIT SP NR S$ 0.575 n.a. 750.0 7.3 7.1 7.1 7.8 62.6 37.8 0.91
CACHE CACHE SP BUY S$ 0.89 0.95 802.6 8.7 8.2 8.3 n.a. 77.6 43.1 1.15
EC World Reit ECWREIT SP NR S$ 0.775 n.a. 604.6 7.4 7.7 n.a. n.a. 59.2 28.6 0.87
Frasers L&I Tr FLT SP BUY S$ 0.995 1.11 1,424.2 6.9 6.8 6.9 7.0 41.5 28.9 1.08
Keppel DC Reit KDCREIT SP NR S$ 1.25 n.a. 1,408.8 4.9 5.8 5.9 6.2 40.8 27.9 1.32
MapletreeInd MINT SP HOLD S$ 1.795 1.69 3,235.4 6.3 6.4 6.6 6.6 43.7 29.2 1.28
MapletreeLog MLT SP BUY S$ 1.155 1.20 2,888.1 6.4 6.3 6.4 n.a. 84.4 38.4 1.12
Sabana REIT SSREIT SP NR S$ 0.425 n.a. 447.6 9.8 n.a. n.a. n.a. 58.2 36.0 0.71
SoilbuildBizREIT SBREIT SP NR S$ 0.675 n.a. 707.3 9.0 8.1 7.9 7.7 63.9 37.5 0.94
Viva Ind Tr VIT SP NR S$ 0.805 n.a. 778.8 8.6 9.1 8.9 8.9 68.0 39.2 1.02
OFFICE REITS
CapitaLand Comm Trust CCT SP BUY S$ 1.655 1.75 4,926.4 5.5 5.5 5.6 n.a. 63.8 38.1 0.95
Frasers Comm FCOT SP NR S$ 1.345 n.a. 1,078.6 7.3 7.4 7.2 7.2 60.1 35.9 0.86
IREIT Global IREIT SP NR S$ 0.76 n.a. 473.2 8.3 8.6 8.6 n.a. 76.2 42.1 1.17
Kep REIT KREIT SP BUY S$ 1.095 1.18 3,644.9 5.8 5.7 5.6 5.7 69.9 38.4 0.76
ManulifeReit USD MUST SP NR US$ 0.88 n.a. 553.6 6.5 7.0 7.2 7.0 55.4 34.2 1.04
OUE Com Reit OUECT SP NR S$ 0.705 n.a. 1,084.7 7.3 7.2 7.2 n.a. 89.1 36.2 0.82
SuntecReit SUN SP HOLD S$ 1.79 1.80 4,560.1 5.6 5.7 5.5 n.a. 61.0 37.7 0.83
RETAIL REITS
BHG Retail Reit BHGREIT SP NR S$ 0.67 n.a. 332.9 8.1 7.6 n.a. n.a. 59.0 32.5 0.82
CapitaLand Mall Trust CT SP HOLD S$ 1.97 1.95 6,984.4 5.6 5.4 5.2 n.a. 57.4 35.6 1.04
CapitaLand Retail China CRCT SP NR S$ 1.565 n.a. 1,390.9 6.4 6.9 7.0 7.7 70.6 36.0 0.99
Fortune Reit HK$ FRT SP NR HK$ 9.32 n.a. 17,756.5 5.3 5.5 5.6 5.8 44.6 29.5 0.72
FrasersCT FCT SP HOLD S$ 2.04 2.15 1,880.5 5.8 5.7 5.6 5.8 43.7 29.4 1.06
LippoMalls LMRT SP NR S$ 0.42 n.a. 1,186.1 8.1 8.1 8.3 8.6 61.7 32.2 1.12
MapletreeCom MCT SP NR S$ 1.555 n.a. 4,472.7 5.5 5.7 5.7 5.9 58.8 36.3 1.13
MapletreeGCC MAGIC SP NR S$ 1.055 n.a. 2,949.1 6.9 6.9 6.9 6.8 70.3 39.2 0.81
SPHREIT SPHREIT SP NR S$ 0.985 n.a. 2,516.9 5.6 5.7 5.8 6.0 35.4 25.6 1.05
Starhill Gbl SGREIT SP BUY S$ 0.75 0.90 1,635.9 6.9 7.0 6.8 6.6 56.5 35.3 0.81
17
OVERWEIGHT On REITs Sector
• Upcycle yield spreads indicate 23% upside potential. Top
BUYs: AREIT, FLT, CCT and FHT
• Opportunity to invest in REITs at attractive levels as Fed rate
hike expectations dampens share prices
• Singapore Yield Spreads Remain Most Attractive Regionally at
3.88%
• Fixed-rate Debt And Longer Maturities To Mitigate Interest
Impact
• Meagre supply of industrial business park space
• Prefer diversified, deep value REITs with exposure to the
Business Park and Hospitality segments.
THANK YOU
Appendix
20
Peer Comparison
4 Price Target Upside/ Fwd Curr Fwd Price/ (Disc)/
Rec 5/22/17 Price (Downside) Price Performance (%) PE Yield Yield Book Gearing * RNAV ps Prem to
(S$) (S$) to TP (%) 5D 1M 3M YTD 1Y 52-wk Low 52-wk High (%) (%) (%) (x) (%) (S$) RNAV (%)
FSSTI FSSTI Index n.a. 3213.57 n.a. n.a. (1.6) 2.3 2.9 11.6 16.3 18.9 (1.9) 27.7 6.8 7.3 1.19 n.a. n.a. n.a.
Real Estate Index FSTRE Index n.a. 793.31 n.a. n.a. (1.0) (0.6) 4.6 13.5 16.6 19.8 (2.1) 22.2 5.6 5.9 0.86 n.a. n.a. n.a.
Property Developers Index FSTREH Index n.a. 836.1 n.a. n.a. (2.9) (2.3) 4.5 18.9 27.6 33.4 (4.5) 39.1 5.5 5.9 0.75 n.a. n.a. n.a.
Property REITs Index FSTREI Index n.a. 774.81 n.a. n.a. 0.6 1.0 4.6 9.2 8.5 10.9 (0.3) 15.9 5.8 6.0 1.00 n.a. n.a. n.a.
Developers
CapitaLand CAPL SP BUY 3.51 4.30 22.5 (2.8) (3.0) (3.0) 16.2 17.4 23.2 (7.4) 24.0 2.3 2.3 0.84 43.9 5.06 (31)
CityDev CIT SP HOLD 10.36 11.40 10.0 (2.5) 1.0 12.1 25.1 26.7 31.9 (5.6) 16.2 1.5 1.5 1.01 18.2 12.95 (20)
GLP GLP SP HOLD 2.9 2.50 (13.8) (0.3) 1.8 5.5 31.8 58.9 67.6 (1.7) 34.6 2.1 2.1 0.81 26.6 3.06 (5)
Ho Bee Land HOBEE SP BUY 2.37 3.02 27.4 0.9 2.6 3.0 16.7 8.2 17.9 (4.0) 14.3 1.7 1.7 0.56 36.6 3.77 (37)
Wing Tai WINGT SP BUY 1.845 2.54 37.7 (1.6) 0.3 2.8 16.0 7.3 18.5 (5.9) 31.7 3.3 3.3 0.46 6.3 3.39 (46)
Healthcare REITs
First REIT FIRT SP NR 1.32 NR n.a. (2.9) (1.5) 1.9 4.3 5.2 9.1 (5.0) 16.3 6.4 6.6 1.31 31.0 n.a. n.a.
PLife REIT PREIT SP HOLD 2.58 2.50 (3.1) 1.2 1.2 5.3 9.3 5.3 11.2 (2.6) 21.7 4.7 4.7 1.50 37.6 1.64 57
Hospitality REITs
Ascendas-hTrust ASCHT SP NR 0.77 NR n.a. (3.8) (0.0) 1.3 9.2 15.8 18.5 (4.3) n.a. 7.0 n.a. 0.84 32.2 n.a. n.a.
CDL HTrust CDREIT SP HOLD 1.615 1.47 (9.0) 3.2 8.8 15.4 20.5 17.0 26.2 0.0 19.0 5.7 5.6 1.05 36.8 1.45 12
AscottREIT ART SP HOLD 1.125 1.15 2.2 0.4 3.2 (0.1) 3.8 4.3 8.6 (1.4) 16.7 5.5 6.4 0.87 41.1 1.07 6
Far East HTrust FEHT SP NR 0.605 NR n.a. 0.0 0.0 1.7 0.8 0.0 6.1 (6.9) 16.8 6.6 6.9 0.67 32.3 n.a. n.a.
Frasers HTrust FHT SP BUY 0.7 0.74 5.7 (0.7) (2.1) 1.4 7.7 (6.0) 11.1 (7.2) 14.4 7.3 7.3 0.91 33.2 0.81 (14)
Industrial REITs
AIMSAMPIReit AAREIT SP NR 1.395 NR n.a. (0.4) (0.4) 3.7 6.5 1.1 12.0 (6.4) 11.6 8.6 8.6 1.00 36.1 n.a. n.a.
Ascendas Reit AREIT SP BUY 2.59 2.75 6.2 (0.4) 0.8 4.0 14.1 12.1 17.7 (1.1) 18.5 6.3 6.3 1.26 33.8 2.21 17
Ascendas-iTrust AIT SP NR 1.115 NR n.a. (5.9) (1.3) 0.9 9.9 16.8 21.9 (10.4) 16.4 5.8 6.0 1.38 28.1 n.a. n.a.
CACHE CACHE SP BUY 0.89 0.95 6.7 (1.7) 0.6 8.5 9.9 2.3 12.7 (5.8) 13.2 8.2 8.3 1.15 43.1 1.04 (14)
Cambridge CREIT SP NR 0.575 NR n.a. 0.9 (0.0) (3.4) 6.5 6.5 9.5 (3.4) 14.4 7.1 7.3 0.91 37.8 n.a. n.a.
Frasers L&I Tr FLT SP BUY 0.995 1.11 11.6 (1.0) (2.5) 3.1 7.6 9.3 11.8 (4.3) 16.3 6.8 6.9 1.08 28.9 0.90 11
Keppel DC Reit KDCREIT SP NR 1.25 NR n.a. 2.5 1.6 7.8 5.5 18.2 20.4 (2.3) 16.7 5.8 5.9 1.32 27.9 n.a. n.a.
MapletreeInd MINT SP HOLD 1.795 1.69 (5.8) 0.6 (0.3) 7.5 9.1 11.1 16.6 (2.7) 15.4 6.4 6.6 1.28 29.2 1.55 16
MapletreeLog MLT SP BUY 1.155 1.20 3.9 3.1 3.1 7.9 13.2 17.3 20.3 (0.4) 15.9 6.3 6.4 1.12 38.4 0.98 18
Office REITs
CapitaLand Comm Trust CCT SP BUY 1.625 1.75 7.7 1.2 6.6 4.5 9.8 10.9 19.0 (0.9) 15.9 5.8 5.9 0.93 38.1 2.59 (37)
Frasers Comm FCOT SP NR 1.34 NR n.a. 1.1 5.5 4.3 6.3 2.3 9.4 (7.6) 15.4 7.4 7.1 0.86 36.0 n.a. n.a.
IREIT Global IREIT SP NR 0.74 NR n.a. (0.7) 3.5 1.4 3.5 3.5 5.0 (3.3) 13.0 8.5 8.5 1.18 41.6 n.a. n.a.
Kep REIT KREIT SP BUY 1.055 1.18 11.8 (0.0) 3.9 1.4 3.4 5.0 6.6 (8.3) 23.2 5.9 5.8 0.73 38.4 1.51 (30)
SuntecReit SUN SP HOLD 1.79 1.80 0.6 1.7 1.7 2.6 8.5 10.2 14.0 (1.1) 24.0 5.7 5.5 0.83 37.7 2.01 (11)
Retail REITs
CapitaLand Mall Trust CT SP HOLD 1.97 1.95 (1.0) 0.5 (1.5) 0.8 4.5 (3.9) 5.3 (12.4) 19.5 5.4 5.2 1.04 35.6 1.84 7
CapitaLand Retail China CRCT SP NR 1.565 NR n.a. 1.3 3.3 9.8 14.2 6.8 17.7 (6.0) 15.7 6.9 7.0 0.99 36.0 n.a. n.a.
Fortune Reit HK$ FRT SP NR 9.32 NR n.a. (0.2) 5.1 6.6 8.2 9.0 12.3 (7.9) 19.5 5.5 5.6 0.72 29.5 n.a. n.a.
FrasersCT FCT SP HOLD 2.04 2.15 5.4 (0.5) (1.9) 0.5 7.4 3.0 9.4 (8.5) 19.0 5.7 5.6 1.06 29.4 1.92 6
LippoMalls LMRT SP NR 0.42 NR n.a. 1.2 3.7 7.7 13.5 23.5 27.3 (2.3) 14.5 8.1 8.3 1.12 32.2 n.a. n.a.
MapletreeCom MCT SP NR 1.555 NR n.a. 1.0 (0.3) 2.6 11.5 9.4 13.5 (3.7) 18.1 5.7 5.7 1.13 36.3 n.a. n.a.
MapletreeGCC MAGIC SP NR 1.055 NR n.a. 1.4 1.4 7.7 11.1 7.7 14.7 (7.9) 18.5 6.9 6.9 0.81 39.2 n.a. n.a.
SPHREIT SPHREIT SP NR 0.985 NR n.a. 0.0 1.0 1.5 3.7 6.5 8.8 (2.0) 18.6 5.7 5.8 1.05 25.6 n.a. n.a.
Starhill Gbl SGREIT SP BUY 0.75 0.90 20.0 0.7 (2.0) 0.7 1.4 (2.0) 3.4 (10.7) 13.4 7.0 6.8 0.81 35.3 0.91 (17)
* Property Developers: Net Debt to Total Equity * REITs: Total Debt to Total Assets
21
Non-linear Relationship Between REIT And Bond Yields
• Relationship between REIT
yields and bond yields need
not be linear. Eg Jul 03, bond
yields expanded by 180bp to
4.1% while REITs compressed
by 130bp to 7.7%
• REITs are growth vehicles as
well, unlike traditional yield
plays.
• Growth supported by rental
growth, asset enhancements
and acquisitions.
• The STI Index is highly
correlated with the FSTREI
(Property REITs Index),
whereby a 1% increase in the
FSSTI is correlated with a
0.7% increase in the FSTREI.
Source: Datastream, UOB Kay Hian
Source: Bloomberg, UOB Kay Hian
Graph Of FSSTI And FSTREI
Graph Of REITs’ Yield And 10Y SGS Yield
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
03 04 05 06 07 08 09 10 11 12 13 14 15 16
(%)
Av erage: 6.45%(ex cl. 2008 crisis)
REITs Yield
10-y r SGS Bond Yield
Av erage: 2.57%
0
200
400
600
800
1000
1200
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
FSSTI (LHS)
FSTREI (RHS)
Interest rate sensitivity
• On 15 Dec, the US Federal Reserve
raised interest rates by another 25bps,
with another three hikes anticipated
for 2017 (probability at 35.5% in Sep
17, according to Fed Funds Futures)
• Financing impact on REITs
minimised due to diversified
funding sources. The average debt
maturity across REITs within coverage
has about doubled to 3.4 years,
implying lower likelihood of near-term
debt refinancing, from the GFC period
of about 1.7 years.
• Longer debt maturities to further
mitigate impact as REIT managers
have actively been tapping debt
markets, eg AREIT and CMT, with
medium-term loans maturing as far
back as 2029 and 2031 respectively.
• Defensive REITs, eg PLife and CMT,
are most sensitive to changes in RFR
as a low-base effect amplifies
sensitivity when yields rise.
Source: Bloomberg, UOB Kay Hian
Change in Risk Free Rate Change in Borrowing Costs Company Ticker +50bps +75 bps +100 bps +50 bps +75 bps +100 bps
% chg in
TP % chg in
TP % chg in
TP % chg in
TP % chg in
TP % chg in
TP
Ascendasreit AREIT SP (6.5) (9.6) (12.4) (3.4) (5.0) (6.9)
AscottREIT ART SP (7.7) (11.2) (14.4) (4.8) (6.9) (9.8)
CACHE CACHE SP (5.4) (7.9) (10.3) (4.3) (6.0) (8.0)
CapitaComm CCT SP (3.2) (7.1) (10.8) (2.8) (4.2) (5.5)
CapitaMall CT SP (10.) (15.) (19.3) (4.8) (7.3) (9.7)
CDL Htrust CDREIT SP (7.5) (10.9) (14.0) (3.4) (4.6) (6.3)
FrasersCT FCT SP (8.7) (12.5) (16.0) (3.3) (5.2) (6.6)
Frasers Hosp FHT SP (6.8) (9.5) (12.2) (4.1) (5.4) (8.1)
Frasers Log FLT SP (8.5) (12.2) (15.6) (2.8) (4.2) (5.5)
Kep REIT KREIT SP (8.5) (12.2) (15.6) (4.0) (6.1) (8.1)
MapletreeInd MINT SP (6.7) (9.8) (12.8) (6.8) (9.7) (13.8)
MapletreeLog MLT SP (7.3) (10.5) (13.6) (3.3) (4.5) (6.4)
PLife REIT PREIT SP (11.7) (16.6) (21.0) (3.3) (5.0) (6.6)
Starhill Gbl SGREIT SP (8.3) (12.0) (15.3) (4.9) (7.7) (10.3)
Suntec REIT SUN SP (8.5) (12.2) (15.7) (6.1) (9.2) (12.3)
Estimated Impact Of Rising Interest Rates
Source: Bloomberg, UOB Kay Hian
Company Debt Cost of Debt 2016 2017 2018 2019 2020 2021 and
Maturity (years) Debt (%) (S$m) Beyond
Ascendasreit 3.80 3.02% 3370 10% 6% 22% 15% 16% 31%
AscottREIT 4.60 2.40% 1984 0% 13% 11% 8% 15% 53%
CACHE 2.40 3.62% 533 0% 14% 43% 34% 9% 0%
CapitaComm 3.50 2.50% 3283 0% 5% 16% 21% 37% 20%
CapitaMall 5.50 3.20% 3842 0% 7% 16% 13% 12% 53%
CDL Htrust 3.20 2.40% 926 0% 0% 35% 24% 20% 22%
FrasersCT 2.70 2.10% 734 0% 30% 8% 16% 10% 36%
Frasers Hosp 2.35 2.55% 810 0% 14% 15% 69% 1% 0%
Frasers Log 3.90 2.80% 499 0% 34% 32% 34% 0% 0%
Kep REIT 3.70 2.53% 3324 0% 0% 14% 28% 23% 36%
MapletreeInd 3.50 2.60% 1064 3% 17% 17% 27% 9% 26%
MapletreeLog 3.50 2.30% 2047 1% 15% 16% 14% 17% 37%
PLife REIT 3.40 1.40% 678 2% 0% 14% 31% 27% 27%
Starhill Gbl 3.40 3.06% 1139 1% 35% 28% 9% 9% 18%
Suntec REIT 2.91 2.28% 2985* 0% 3% 37% 27% 10% 22%
Spread Out Debt Maturity Profile Reducing Refinancing Risk
22
23
Brexit: Low impact from currency translation
Company FY17 P&L UK
exposure (%) B/S or RNAV exposure (%) Remarks
FHT 22% 19% (24% of Europe) FHT has hedged 70-80% of distributions from the UK (policy to
hedge distributions on a 6-month rolling basis).
CDREIT 5% 5% Natural hedging of UK assets would mitigate adverse impact on
income should the pound weaken.
ART 13% 11% (28% of Europe)
At least 30% of full-year foreign income hedged as of 1Q16 (12-
month rolling basis). While currently unhedged, management has
guided for up to 80% of pound income going forward. Every 10%
depreciation of the pound will negatively impact earnings by 1.3%.
Ho Bee 29% 30% (GAV) On the income side, every 10% depreciation of the pound will
negatively impact earnings by 2.9%.
CDL 14% 11% (GAV), (12% Europe)
Minimal impact on balance sheet due to natural hedge. On the
income side, every 10% depreciation of £ will negatively impact
earnings by1.4%.
Currency Translation impact
24
Office: Conversions To Mitigate Oversupply Concerns
• Demolition in 2011-15 had
removed an average of 1m sf of
space p.a.
• Another 2.5m sf slated for
demolition/conversion.
• Office buildings may be
redeveloped into residential or
commercial premises.
• Even if buildings are redeveloped
into offices, development will
take 3-5 years and the likelihood
is that offices will re-emerge
strata-titled.
Source: URA, UOB Kay Hian, media reports
Potential Demolitions/Conversions In 2016-18
Gross And Net New Supply Of Office Space
Source: URA, UOB Kay Hian
2012 2013 2014 2015
Gross New Supply (m sf) 2.3 2.5 2.4 1
Demolitions/ Conversions (m sf) -1.4 -0.7 (~1) (~1)
Net New Supply (m sf) 0.9 1.8 ~1.4 ~0
Building Existing NLA (sf) Developer
Keppel Towers/ GE Towers 430,000 Keppel Land
51 Cuppage Road (former Starhub Centre) 280,000 Frasers Centrepoint
Keypoint Building (Residential redevelopment) 304,000 Fragrance/ Aspial
NOL Building 208,000 Fragrance
79 Anson Road 202,000 UE
15 Hoe Chiang Road (Hotel redevelopment) 190,000 Fragrance
International Factors Building 48,000 Tuan Sing
Robinson Towers 86,000 Tuan Sing
San Centre (En-bloc) 132,000 Chip Eng Seng
2HR ( Partial conversion of into retail) 40,000 Guthrie GTS
6 Shenton Way (Conversion into serviced
apartments and retail)
313,000 OUE
Eminent Plaza Redevelopment (Arc 380) 100,000 Tong Eng
700 Beach (Hotel redevelopment) 67,400 Master Contract/ Fine Grain
McDonald's Place at KAP (Residential/ Retail) 15,000 Oxley
Katong Junction (Retail conversion) 36,000 Buxani Group/ Capital Management
Finexis Building 53,800 Offshore fund (Sin Capital)
2,505,200
25
Office: Substantially Cheaper Than Hong Kong
• Hong Kong occupancy costs are at a
90-207% premium to Singapore office
rentals, vs a historical average of 64%.
• Singapore offices’ occupancy costs
rank 20th globally compared to second-
ranked Hong Kong.
Singapore Ranked 20th In Occupancy Costs
Source: CBRE
Rank City/ Location Prime office occupancy cost
(US$ps p.a.) 1Q16
1 Hong Kong (Central), Hong Kong 290.21
2 London–Central (West End), United Kingdom 262.29
3 Beijing (Finance Street), China 188.07
4 Beijing (CBD), China 181.6
5 Hong Kong (West Kowloon), Hong Kong 179.49
6 Tokyo (Marunouchi/Otemachi), Japan 160.47
7 New Delhi (Connaught Place–CBD), India 149.71
8 London–Central (City), United Kingdom 145.38
9 New York (Midtown Manhattan), U.S. 136.71
10 Shanghai (Pudong), China 132.78
11 Moscow, Russian Federation 121.94
12 San Francisco (Downtown), U.S. 120.48
13 Shanghai (Puxi), China 106.65
14 Paris Ile-de-France, France 105.99
15 Boston (Downtown), U.S. 103.75
16 San Francisco (Peninsula), U.S. 97.38
17 Seoul (CBD), South Korea 96.43
18 Shenzhen, China 94.87
19 Mumbai (Bandra Kurla Complex), India 94.79
20 Singapore, Singapore 94.47
Rental Differential Between Singapore And Hong Kong
0
20
40
60
80
100
120
140
0
5
10
15
20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Rental Diff HK & SG SG (LHS) HK (LHS)
(%)(S$psf pm)
26
Hotel: Supply led turnaround in sight
Outlook:
• Expect visitor arrival growth of 3% yoy in 2017.
Retain 2016 growth estimates at 5% yoy, on more
sombre 2H16 visitor arrivals (compared to 1H16),
post the Zika outbreak.
• Occupancy to remain stable at 84-85% level.
• Pressure on room rates to remain due to supply
indigestion
Key Trend:
• Operating data for Singapore hoteliers in Oct
16 still poor, likely in wake of August’s domestic
Zika outbreak (13.4% yoy RevPAR decline).
• Strong growth in Chinese visitors offset by
overall weaker spend on accommodation and
shorter length of stay
• Deterioration in Chinese length of stay
coinciding with sharp increase in cross border
(Malaysia-Singapore) travel by tourists from
China (up 105.4% in 9M16). Source: STB, CBRE, UOB Kay Hian
Average Length Of Stay and Proportion Of Chinese Visitors Travelling By Land
Per capita Tourist Expenditure On Accommodation
Source: STB, CBRE, UOB Kay Hian
200
220
240
260
280
300
320
340
360
380
70%
75%
80%
85%
90%
2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16
Overall Occupancy Average Room Rate Accomodation Expenditure per Tourist
(S$)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
14%
16%
18%
20%
22%
24%
26%
28%
2007 2008 2009 2010 2011 2012 2013 2014 2015 6M16
% of Chinese travelling by land Chinese ALOS* Total ALOS*
(days)
27
Residential: Drag On Rents To Impact Capital Values
Source: URA, UOB Kay Hian
URA Price / Rental Indices
Slowing Influx of Foreigners And Permanent Residents
Source: URA, HDB, UOB Kay Hian
• 2015 saw foreigner and PR growth
rate of 1.6% yoy, down from the
peak in 2008 (+15.1% yoy)
• Growth translates to 13,314
households, lower than the annual
supply of ~22,000 units in 2016
• Bottoming out in private home
prices to hinge on rent stabilisation
• Foreigners and PRs accounted for
39% of total population (5.5m) in
2015
• Watch out for signs of policy
easing on immigration, which
could likely happen in 2018
-5%
0%
5%
10%
15%
0
500
1,000
1,500
2,000
2,500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
growth Foreigners & PRs
(000)
40
60
80
100
120
140
160
180
4Q93 2Q95 4Q96 2Q98 4Q99 2Q01 4Q02 2Q04 4Q05 2Q07 4Q08 2Q10 4Q11 2Q13 4Q14 2Q16
Price
Rental Index
28
Residential: Signs of stabilization
Source: URA,CEIC, UOB Kay Hian
SRX Index
URA & HDB
Source: MND
Monthly Developer Sale Volume
Source: URA, HDB, UOB Kay Hian
• 3Q16 URA private home price index
flash estimates displayed 12th
consecutive price decline from
3Q13’s peak (-10.8% from peak)
• Recent uptick in sales volumes, on
the back of recent launches that
include Forestwoods and Queens
Peak.
• High end completed projects like
OUE Twin Peaks saw healthy
demand which was not captured in
URA’s newly released data
• Long-term property prices to trend in
line with GDP growth.
0%
50%
100%
150%
200%
250%
0
200
400
600
800
1000
1200
1400
1600
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Jul16
Aug16
Sep16
Oct16
Nov16
Launched Sold Takeup
60
70
80
90
100
110
120
130
140150
160
3Q06 3Q08 3Q10 3Q12 3Q14 3Q16
HDB PPI
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
155
160
165
170
175
180
Nov 13 May 14 Nov 14 May 15 Nov 15 May 16 Nov 16
SRX Private Housing mom change
28
29
FX Hedging Policy
Healthcare REITs Hedging Policies
First REIT Indonesian leases in SGD. Hence no hedging required as sponsor bears the currency risks.
Parkway Life REIT Hedge distributable income through forward forex contracts, aim to coincide with underlying loans. Balance sheet side policy is to adopt natural hedging as much as possible.
Hospitality REITs
Ascendas Hospitality Trust 25% of foreign income hedged through forwards. Balance sheet side policy is to adopt natural hedging as much as possible.
CDL Hospitality Trust Distributable income unhedged.
Ascott Residence Trust Overall income hedge of about 40% over 12 months, mainly in three currencies, Euro (70%), JPY (80%), GBP (80%). Balance sheet side policy is to adopt natural hedging as much as possible
Far East Hospitality Not Applicable, mainly SG assets
Frasers Hospitality Trust Hedge fixed income for 6-9 months rolling basis, variable component a month after book closure. Balance sheet policy to adopt natural hedging as much as possible
OUE HT Not Applicable, mainly SG assets
Industrial REITs
A-REIT Planning to hedge 100% of Aus DI on 6-12 mths rolling basis post the recent Australian acquisition
Cache Logistics Trust Unhedged on income side. Balance sheet side policy is to adopt natural hedging as much as possible.
Cambridge Industrial Trust Not Applicable, mainly SG assets
Mapletree Industrial Trust Not Applicable, mainly SG assets
Mapletree Logistics 80% of overseas Distributable Income hedged over 12 months, policy to match lease expiry. Balance sheet side policy is to ado pt natural hedging as much as possible.
Sabana REIT Not Applicable, mainly SG assets
SoilbuildBizREIT Not Applicable, mainly SG assets
Office REITs
CapitaCommercial Trust Not Applicable, mainly SG assets
Frasers Comm Hedge 100% on 6-9month rolling basis
Keppel REIT 50-70% hedge on average for full year, 90% hedge on 3-6 month rolling basis. Adopt natural hedging as much as possible on balance sheet side.
Suntec REIT Hedge on ad hoc basis. Balance sheet side policy is to adopt natural hedging as much as possible.
Retail REITs
CapitaMall Trust Not Applicable, mainly SG assets
CapitaRetail China Trust Unhedged RMB income. Balance sheet hedged using non- deliverable forwards in SGD
Fortune REIT No hedging policy for Distributable Income. All HKD-denominated only loans are hedged using forwards
Frasers Centrepoint Trust Not Applicable, mainly SG assets
Lippo Malls Retail Trust 70% of Indonesian Income hedged for 8 quarters as of Feb 15. Balance sheet hedged through Cross Currency Swaps
Mapletree Commercial Trust Not Applicable, mainly SG assets
MapletreeGCC 60% of distributable income hedged. Balance sheet policy to adopt natural hedging as much as possible
SPHREIT Not Applicable, mainly SG assets
Starhill Global REIT Hedge 50% of MYR income. Balance sheet policy to adopt natural hedging as much as possible
30
Leveling The Playing Field: Gearing, Hedging, Volatility
Initial Yield Gearing Hedge Hedged Observed Adjusted Pickup in Share Adjusted
Company Price Yield Pickup Adjusted Costs Prob Adj Upside to Upside to Adjusted Px Upside to
Name 5-Oct-16 Yields Yield Fair Yield Fair Yield upside Volatility Volatility
(%) (%) (%) (%) (%) (%) (%) ppt ppt (x)
Hospitality REITs
AscottREIT 1.145 7.37 0.23 7.60 (0.29) 7.89 19.7 28.1 8.5 6.9 4.1
CDL HTrust 1.39 6.78 0.35 7.13 (0.04) 7.16 11.5 17.9 6.3 18.2 1.0
Far East HTrust 0.615 6.99 0.54 7.53 - 7.53 9.8 18.3 8.5 9.2 2.0
Frasers HTrust 0.7 7.67 0.32 7.99 (0.47) 8.46 15.7 27.7 12.0 5.8 4.8
OUE HT 0.685 7.15 0.44 7.59 - 7.59 7.1 13.6 6.6 8.4 1.6
Industrial REITs
AIMSAMPIReit 1.42 8.17 0.44 8.61 (0.01) 8.61 14.1 20.3 6.2 6.0 3.4
Ascendasreit 2.48 6.61 0.34 6.95 0.03 6.92 14.5 19.8 5.3 10.9 1.8
Cambridge 0.55 8.18 0.40 8.59 - 8.59 6.4 11.6 5.3 7.1 1.6
CACHE 0.88 9.14 0.23 9.37 0.00 9.36 27.3 30.4 3.1 13.5 2.3
Keppel DC Reit 1.22 5.82 0.65 6.47 (1.21) 7.68 3.7 36.8 33.1 6.3 5.8
MapletreeInd 1.74 6.59 0.73 7.31 - 7.31 (2.3) 8.5 10.8 8.9 1.0
MapletreeLog 1.06 6.95 0.71 7.67 (0.33) 8.00 20.8 38.9 18.1 9.5 4.1
Sabana REIT 0.53 11.55 0.24 11.79 - 11.79 58.5 61.8 3.3 14.9 4.1
SoilbuildBizREIT 0.715 8.81 0.38 9.19 - 9.19 14.3 19.2 4.9 5.6 3.4
Office REITs
CapitaComm 1.625 6.22 0.34 6.55 - 6.55 18.8 25.2 6.4 15.9 1.6
Frasers Comm 1.425 6.95 0.18 7.12 (0.13) 7.25 3.6 8.1 4.5 10.0 0.8
Kep REIT 1.135 5.78 0.12 5.90 (0.05) 5.95 15.4 18.8 3.3 11.2 1.7
SuntecReit 1.75 5.81 0.27 6.09 (0.03) 6.11 8.6 14.2 5.6 13.4 1.1
Retail REITs
CapitaMall 2.13 5.19 0.25 5.44 - 5.44 2.3 7.2 4.9 10.4 0.7
CapitaRChina 1.615 7.18 0.74 7.92 1.32 6.61 0.3 (7.7) (8.0) 11.1 (0.7)
FrasersCT 2.13 5.56 0.58 6.14 - 6.14 10.8 22.4 11.6 9.2 2.4
MapletreeCom 1.57 5.48 0.23 5.70 - 5.70 3.5 7.7 4.3 9.9 0.8
MapletreeGCC 1.1 6.73 0.23 6.95 (0.09) 7.04 1.4 6.1 4.7 6.6 0.9
SPHREIT 1 5.70 0.55 6.25 - 6.25 2.7 12.6 9.9 5.4 2.3
Starhill Gbl 0.825 6.47 0.43 6.91 0.28 6.63 21.2 24.1 2.9 4.2 5.7
GEARING EFFECT HEDGING EFFECT VOLATILITY EFFECT
31
REITs’ Geographic Diversification
Singapore China South Korea Hong Kong Japan Vietnam Malay sia Philippines Australia Indonesia Europe New Zealand Maldiv es India Total
A-REIT 87% 2% 0% 0% 0% 0% 0% 0% 11% 0% 0.0% 0% 0% 0% 100%
Ascott Residence Trust 15% 20% 0% 0% 15% 8% 2% 4% 3% 3% 31% 0% 0% 0% 100%
Cache Logistics Trust 91% 1% 0% 0% 0% 0% 0% 0% 8% 0% 0% 0% 0% 0% 100%
CapitaCommercial Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
CapitaMall Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
CDL Hospitality Trust 71% 0% 0% 0% 3% 0% 0% 0% 9% 0% 5% 4% 8% 0% 100%
Frasers Centrepoint Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Frasers Hospitality Trust 45% 0% 0% 0% 7% 0% 9% 0% 22% 0% 17% 0% 0% 0% 100%
Keppel REIT 88% 0% 0% 0% 0% 0% 0% 0% 12% 0% 0% 0% 0% 0% 100%
Mapletree Industrial Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Mapletree Logistics 39% 7% 8% 22% 20% 0% 4% 0% 0% 0% 0% 0% 0% 0% 100%
Parkw ay Life REIT 66.3% 0.0% 0.0% 0.0% 33.1% 0.0% 0.5% 0.0% 0.0% 0.0% 0% 0.0% 0% 0% 100%
Sabana REIT 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Starhill Global REIT 66% 2% 0% 0% 3% 0% 13% 0% 16% 0% 0% 0% 0% 0% 100%
Suntec REIT 95% 0% 0% 0% 0% 0% 0% 0% 5% 0% 0% 0% 0% 0% 100%
Far East Hospitality 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Cambridge Industrial Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
AIMS ASP Capital Industrial REIT 86% 0% 0% 0% 0% 0% 0% 0% 14% 0% 0% 0% 0% 0% 100%
Ascendas Hospitality Trust 23% 9% 0% 0% 22% 0% 0% 0% 46% 0% 0% 0% 0% 0% 100%
Mapletree Commercial Trust 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
First REIT 3% 0% 1% 0% 0% 0% 0% 0% 0% 96% 0% 0% 0% 0% 100%
Lippo Malls Indonesia Retail Trust 0% 0% 0% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 0% 100%
CapitaRetail China Trust 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Fortune REIT 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
MapletreeGCC 0% 29% 0% 71% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
OUE HT 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
SoilbuildBizREIT 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Viv a Ind Tr 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
Frasers Comm 60% 0% 0% 0% 0% 0% 0% 0% 40% 0% 0% 0% 0% 0% 100%
SPHREIT 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 100%
32
OVERWEIGHT On Property & REITs
• Prefer diversified, deep value developers and REITs with exposure to
the Business Park and Hospitality segments. Top picks – CapitaLand,
City Developments, AREIT, FLT, and CCT.
• REITs – Upcycle yield spreads indicate 23% upside potential.
Preferred picks: AREIT, FLT, CCT and FHT. - Regionally, Singapore’s yield spreads (at 3.91%) remain the most attractive.
- Prefer REITs with exposure to Business Park space.
- Fixed-rate Debt And Longer Maturities Mitigate Interest Impact.
• Developers – Prefer plays that are well-diversified, have strong
balance sheets and offer deep value. Preferred picks: CapitaLand and
City Developments. - Silver Lining in Supply
- P/B analysis indicates attractive upside potential of 206% vs downside risk of
39%.
- Supply-side led shift in fundamentals beyond 2017
33
Residential: Silver Lining in Supply
Source: URA, UOB Kay Hian
Expect Fundamental Improvement in Private Residential Market (Ex-EC)
Total Unsold Private Residential Market Inventory
Source: URA, HDB, UOB Kay Hian
• Expect overall private housing
vacancy to peak at 11.5% in 2017
before fundamentals begin
improving from 2018 (11.5%
vacancy) to 2020 (10.1%
vacancy).
• Underpinned by tapering private
residential supply. Our forecast
incorporates muted residential
demand of about 8,200 units p.a.
from 2015 to 2020, with
conservative population growth
estimates (1.2% CAGR).
• As of 4Q16, unsold inventory
(including completed units) of
28,557 units was near trough
levels (historic low of 27,820 units
in 1Q16), based on URA data
stretching back to 1999.
0.0%
5.0%
10.0%
15.0%
0
5,000
10,000
15,000
20,000
25,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017F 2018F 2019F 2020F
Demand Supply Vacancy
34
Residential: Real Fundamental turn in 2018
Source: URA,CEIC, UOB Kay Hian
Total Supply of Private Residential Projects in the Pipeline
Overall supply
Source: MND
Outlook:
•Increased property stamp duties in Hong Kong to dim
expectations of easing property cooling measures in
Singapore, with the authorities expected to maintain
measures to mitigate excess foreign capital inflow
•Capital values to remain under pressure on lacklustre rental
market, as influx of foreigners show steady decline
•Property prices to fall 15-20% yoy from the peak in 2013.
•Bottoming out in private home prices to hinge on rent
stabilisation
•Watch out for signs of policy easing on immigration, which
could likely happen in 2018
Key Trends:
•Price decline slowing, nascent signs of pickup in high end
segment.
•Developers slashing prices and offering creative schemes to
move inventory.
•Rental market remains subdued due to declining foreign
population growth.
35
OVERWEIGHT On Developers
• Developers are deep in value trading at 0.6x SD below the average historical
discount to RNAV of about 15% (GFC:-1.59SD, AFC: -2.21SD).
• Prefer CapitaLand and City Developments.
Developers’ RNAV Discount
Source: Datastream, UOB Kay Hian
Peer Comparison
Source: Bloomberg, UOB Kay Hian
Price Target Upside/ Market Curr Fwd Curr Fwd Book Price/ RNAV Fwd Company Ticker Rec 21 Apr 17 Price (Downside) Cap. PE PE Yield Yield NAV ps Book ps ROE Gearing (S$) (S$) to TP (%) (US$m) (x) (x) (%) (%) (S$) (x) (S$) (%) (%)
CapitaLand CAPL SP BUY 3.63 4.30 18.5 15,417 23.3 23.9 2.2 2.2 4.15 0.87 5.06 3.9 41.4
CityDev CIT SP BUY 10.28 11.40 10.9 9,348 16.2 16.1 1.6 1.6 10.22 1.01 12.95 5.7 16.3
GLP GLP SP HOLD 2.86 2.50 (12.6) 13,405 35.6 33.9 2.1 2.1 2.57 1.11 3.06 3.3 26.6
Ho Bee Land HOBEE SP BUY 2.31 3.02 30.7 1,538 16.6 13.9 1.7 1.7 4.16 0.56 3.77 3.7 43.9
Wing Tai WINGT SP BUY 1.825 2.54 39.2 1,412 22.6 19.2 3.3 3.3 4.09 0.45 3.39 2.4 3.3
36
Developers: Attractive Rewards vs Risk Proposition
• Peak/trough P/B multiples in past cycles suggest developers offer upside potential of
206% vs downside risk of 39%.
• Prefer deep value and diversified developers: CapitaLand and City Developments.
Private Property Index vs Developers Index
Source: Bloomberg
P/B Valuation
* Average of Peak monthly P/B's in past three cycles, **Average of peak monthly P/B's in the past two cycles,
Source: UOB Kay Hian
UpCycle DownCycle Upside Price @ BV ps Current LT Avg Upside Peak Avg Upside Peak Avg Downside to Downside Company Ticker 21 Apr 17 (S$) P/B P/B to Curr P/B P/B* to Curr P/B P/B** to Curr P/B Ratio (S$) (x) (x) (%) (x) (%) (x) (%) (%)
CapitaLand CAPL SP 3.63 4.15 0.87 1.15 31.3 2.15 145.6 0.43 (50.2) 2.9
CityDev CIT SP 10.28 10.22 1.01 2.01 100.3 2.71 169.1 0.76 (24.0) 7.0
Ho Bee Land HOBEE SP 2.31 4.16 0.56 0.84 50.8 2.22 299.8 0.32 (43.1) 7.0
Wing Tai WINGT SP 1.825 4.09 0.45 0.92 106.0 1.38 208.3 0.27 (38.9) 5.4
Average 0.72 1.23 72.1 2.11 205.7 0.45 (39.1)