REITs are typically stable investments that grow in value over the long run. That being said, there are special circumstances where REITs can see a spike in its share price. This requires the right catalysts to be triggered to drive interest from investors.
According to DBS and UOBKH, Keppel KBS REIT, Fraser Hospitality Trust and Netlink NBN Trust are three REITs that have the potential to trigger a spike in investor interest.
Investors Takeaway: 3 REITs Awaiting Catalysts To Catalyse Its Share Price
- Keppel KBS US REIT
Despite the early lease termination at Westmoor Center in Denver in 1Q18, Keppel KBS US REIT managed to deliver DPU of US$0.015. This was marginally ahead of the IPO forecasts. However, there were other positives that lit up Keppel KBS REIT’s quarter.
Majority of Keppel KBS US REIT’s leases signed during 3Q18 saw positive rental reversions with 5.6 percent increase on average. Had the large renewal at 1800 West Loop not dropped, average rent would have increased by about 17 percent. The ability of Keppel KBS US REIT to achieve higher signing rents is a continuation of the positive trend in 1H18. It is an indication of the rising spot rents and Keppel KBS US REIT’s portfolio being generally under-rented. Based on CoStar data, spot rents in markets where KBS US REIT’s properties are located are projected to grow between 1.2 to 10.4 percent.
The unitholders of recently approved the proposed acquisition of Westpark Portfolio, a business campus located in Redmond Washington. The acquisition will further deepen Keppel KBS US REIT’s presence in the Seattle office market, which is benefiting from growth in the technology sector. DBS expects release of further details on the deal to catalyse Keppel KBS US REIT’s share price.
BUY, TP US$0.95; Current share price US$0.570
- Frasers Hospitality Trust
FY18 was a challenging year with distribution per unit (DPU) falling 5.6 percent year-on-year. While the market continues to be bearish on Frasers Hospitality Trust, DBS thinks that there is potential for a bullish recovery in FY19 as Singapore’s hospitality sector recovery gains steam. Moreover, Frasers Hospitality Trust’s portfolio of quality hotels in key gateway cities is hard to replicate at its current dividend yield valuation.
According to DBS, Frasers Hospitality Trust is now in a strong position to pursue acquisition opportunities as its gearing stands at 33 percent. DBS believes that Frasers Hospitality Trust has the ability to execute on its inorganic strategy given its past successful track record such as the purchase of Sofitel Sydney Wentworth and Novotel Melbourne. Going forward, DPU-accretive acquisitions should be re-rating catalyst for Frasers Hospitality Trust.
BUY, TP $0.78; Current share price $0.695
- Netlink NBN Trust
Netlink NBN Trust saw its various services achieve broad-based growth as revenue from residential, non-residential and non-building access point (NBAP) continue to grow. As such, Netlink NBN Trust managed to declare DPU of $0.0244 for 1H19, which is slightly higher than its IPO prospectus’ guiding dividend yield.
Recently, both Singtel and Starhub announced that they will be retiring their legacy ADSL and HFC networks. These business opportunities will mainly go to Netlink NBN Trust given its dominant market share of 90 percent for residential and 35 percent for non-residential connections. According to UOBKH, this will accelerate growth in NetLink’s residential fibre connection to 9 percent in FY19 and 6.2 percent in FY20.
Netlink NBN Trust’s manager is keeping a close eye on the developments on the roll-out of 5G networks in Singapore. It is open to make investment to support network sharing among the four mobile operators and is currently in discussions with all mobile operators. Netlink NBN Trust could eventually develop its 5G network to support the four mobile operators.
BUY, TP S$0.99; Current share price $0.77
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