In the last two months, stock markets around the world have been falling as investors lost confidence in tech companies’ valuation. Moving forward, 2019 appears to be a year where stocks with solid earnings profile are going to thrive. According to DBS, there are three REITs with strong earnings visibility that are suitable for low-risk investors to position their portfolio in 2019.
Investors Takeaway: 3 REITs With Strong Earnings Visibility For Low-Risk Investors
- AIMS AMP Capital Industrial REIT
AIMS Amp REIT is a REIT that is predominantly focused on Singapore. AIMS Amp REIT has a diversified asset portfolio and attractive exposure to in-demand properties such as business parks and modern ramp-up facilities.
With around 600,000 sqft of untapped gross floor area, it is one of the highest amongst S-REITs. Given the prime location of selected properties, DBS expects the manager to redevelop these sites into future-proof assets such as data centres. According to DBS’ estimates, the unlocking of unutilised GFA could lift its proforma FY18 revenue and NAV by 15.8 percent and 7.9 percent respectively.
With consolidations among industrial REITs in focus, AIMS Amp REIT also has the potential to become an acquisition target given its fragmented shareholding structure and access to untapped GFA within the portfolio.
Supported by master leases with built-in rental escalations, AIMS Amp REIT offers investors a high degree of income certainty ahead of the sector’s anticipated recovery in 2020. It also comes with an attractive dividend yield of 7.7 to 7.9 percent per annum over FY19F-21F.
BUY, TP $1.55; Current share price $1.32
- Parkway Life REIT
Parkway Life REIT’s 3Q18 fell below consensus expectations as one-off contribution from divestment gains was absent this quarter. However, stripping away the one-off distribution, Parkway Life REIT’s DPU grew 2.7 percent year-on-year.
Amongst the S-REITs, Parkway Life REIT offers one of the strongest earnings visibilities. With a WALE of around nine years, unitholders can expect Parkway Life REIT to deliver steady returns from its portfolio of Singapore hospitals. Given the current volatile and uncertain market conditions, this is a strong positive attribute that DBS likes about Parkway Life REIT.
Moving forward, DBS forecasts Parkway Life REIT to deliver steady growth in returns through its three-pronged growth plans of asset recycling strategies, venturing into new market and potential acquisition pipeline from its Sponsor while maintaining its defensive stance in expansion.
Parkway Life REIT is currently exploring opportunities in developed countries with a mature healthcare market, i.e. Australia and Europe as new markets to venture into. As its Japan assets have grown to a decent size (accounting for 40 percent of gross revenue), the manager thinks that it is timely to look into building a third pillar for Parkway Life REIT to support its next phase of growth.
BUY, TP $3.10; Current share price: $2.64
- Mapletree Logistics Trust
In 3Q18, Mapletree Logistics Trust announced the completion of two acquisitions. The first acquisition was the Coles Distribution Centre located in Brisbane, Australia. It is a prime logistics property acquired from Blackstone that enjoys strong connectivity to main population bases in Queensland. The property is also well located in a prime logistics precinct along the Logan Motorway.
The other acquisition is a logistics property in Vietnam that was previously owned by Unilever. The province where this property is located in is a thriving manufacturing hub that attracts multinational corporations from Europe. It supports demand for the logistics space rental market.
Overall, DBS likes Mapletree Logistics Trust as the manager continues to add to its existing markets of Australia and Vietnam. Mapletree Logistics Trust has been making shrewd acquisitions of warehouses that exhibits good property attributes like good location leased to tenants with strong credit and strong income visibility supported by a fairly long WALE. According to DBS, these attributes support Mapletree Logistics Trust’s overall income visibility.
BUY, TP $1.50; Current share price: $1.27
3 REITs With Yield-Accretive Acquisition Potential For Growth