INVESTORS CONTINUE TO their search for higher yields as Singapore’s economy slows and its population ages. In addition, the prospects for capital gains in property investments are diminishing while real interest rates are set to remain negative for some time.
One area to hunt for yields is the S-REITs sector. In particular, analysts have upgraded their outlook for S-REITs. On July 18, OCBC Investment Research says “S-REITs will retain their shine as investors continue to incorporate them into their portfolios, either for diversification or yield optimisation purposes”.
According to UBS Research, S-REITs could see more upside. This was underpinned by the government auction of SGS 10-year bonds with a coupon rate of 3.12%. The average yield was 1.55% p.a. and the price $115.8.
UBS reckons that if the bond yields remain unchanged, dividend yields could compress by a further 80bps for traditional yield stocks such as Singapore Post, Singapore Press Holdings, SMRT, SIA Engineering and ST Engineering; between 56bps and 83 bps for S-REITS; and 164 bps for cyclical yield stocks like Singapore Airlines and Venture Corp. Meanwhile, telcos and business trusts are already trading at or below their five-year mean yield spread, UBS says.
“Given the recent rally, we think selected names may have become overbought. We still like CapitaMall Trust, ST Engineering, Hutchison Port Holdings Trust, CDL Hospitality Trusts and SPH but have recently downgraded ratings on Singapore Telecoms and Frasers Centrepoint Trust on strong share price performance,” the UBS report states.
JP Morgan, on the other hand, says it prefers office REITs, and its top pick is CapitaCommercial Trust. The CapitaLand unit announced 1H12 results on July 20, following which OSK-DMG immediately upgraded it. CCT reported 2Q12 DPU of 2.06 cents, which with 1Q12 DPU of 1.90 cents, gives an annualised DPU of 7.92 cents and a yield of 5.95%.
Analysts think CCT’s cycle of negative rent reversions could be coming to an end. Its 7.5% y-o-y rise in distributable income to $58.5 million was mainly attributable to revenue contribution from the acquisition of Twenty Anson, higher rental income from HSBC Building and Raffles City Singapore, and higher yield protection income for One George Street.
“Going forward, with a high portfolio occupancy of 96.2%, a relatively low 6.1% of lease expiry profile for the rest of the year, together with a portfolio of high quality Grade A office towers in prime location of Singapore, we expect CCT to be able to benefit from the stabilising of Singapore’s office market,” writes Pang Ti Wee, an analyst at OSK.
CCT’s 60% stake in Raffles City Singapore Trust (RCS Trust) which includes two hotels with a total 2,030 rooms and convention space, accounts for 34% of the trust’s NPI (net property income). RCS Trust has just renewed the lease to RC Hotels for another 20 years from 2016 to 2036 subject to rent review every five years. RCS Trust’s cash flow stability derives from its step-up minimum rent which contributes about 70% of the total gross rental income from the lease to RC Hotels.
Pang of OSK is forecasting DPU of 8 cents for FY13, giving forward yields of 6.01%. He is valuing CCT at $1.50, which is a discount of 5% to its NAV of $1.58 as at June 30.
FAR EAST HOSPITALITY COMES TO MARKET
According to Reuters, Far East Hospitality REIT will eventually own seven hotels and four serviced residences in Singapore with about 2,500 rooms. The REIT should start to market its IPO in early August at yields of 6-6.5%. Pricing of the REIT is scheduled for Aug 16 and the IPO could be as large as $700 million, Reuters claims. Analysts reckon that yields could be re-priced as high as 7% in order to attract investors.
No comments:
Post a Comment