Following the first part of this two-part series where we discussed about RHB’s outlook on the REIT sector and how to adopt a defensive portfolio positioning with REITs, we continue with a deeper dive into RHB’s top five REIT picks and why they deserve a place in investors’ portfolio.
Investors Takeaway: Top 5 REIT Picks And Why They Deserve A Place In Your Portfolio
- Ascendas REIT (A-REIT)
A-REIT has been identified as RHB’s preferred industrial pick among the SG REITs. According to RHB, A-REIT offers the best exposure to favourable business park and hi-tech industrial segment in Singapore.
A-REIT has been actively expanding its geographical focus over the past three quarters. It made its maiden foray into the UK market this year with the acquisition of 12 logistics properties. It was soon followed by another 26 logistics properties. The acquisitions came as part of A-REIT’s geographical diversification strategy. RHB also notes that the acquisitions were part of A-REIT’s strategy to lengthen its portfolio land-lease tenure given that logistic assets are mainly freehold compared with up to 60-year lease tenures for Singapore industrial properties.
A-REIT has been active in its portfolio rebalancing efforts to divest mature shorter-lease assets and redeploy the capital into higher yielding longer weighted average lease expiry (WALE) assets. So far, A-REIT has divested eight properties at a premium to its book value. This has been instrumental in delivering higher value for A-REIT shareholders.
BUY, TP $2.90; Current share price $2.60
- CDL Hospitality Trusts
RHB favours CDL Hospitality Trusts as its top pick in the REIT hospitality sub-sector. RHB foresees Singapore hotel revenue per available room (RevPAR) to rebound strongly in 2H18/2019 with continued growth in visitor demand and tapering supply. The corporate segment, which accounts for half of CDL Hospitality Trusts’ income, is also expected to see a stronger performance with tailwind from a strong pipeline of MICE events and a better economic outlook.
CDL Hospitality Trusts is also undergoing asset enhancement initiatives at Orchard Hotel and Grand Copthorne Waterfront Hotel to better position the REIT for a multi-year sector recovery. The management has also indicated that there is room for inorganic growth from acquiring yield accretive hotel assets in the European hotel market. Overall, RHB recommends CDL Hospitality Trust as one of the most liquid proxies that offers exposure to the recovery in Singapore’s hospitality market.
BUY, TP $1.80; Current share price $1.48
- Manulife US REIT
Manulife US REIT owns a portfolio of high-quality class A and trophy office assets across the US. RHB notes that Manulife US REIT’s portfolio provides investors with excellent exposure to a rebounding US economy where office fundamentals remain strong. This is reflected in continued positive rent reversions, stable portfolio occupancy and higher property valuations. RHB highlights that about 94 percent of its portfolio have built-in annual rent escalations and mid-term or periodic rental increases. This will drive portfolio rents to increase by 2.1 percent per annum.
Moving forward, RHB notes that Manulife US REIT’s key catalysts include inorganic growth from recent acquisitions, organic growth from built-in rent escalation and reversions, and potential asset enhancements.
BUY, TP US$0.92; Current share price US$0.77
- Starhill Global REIT
Within the retail REIT universe, Starhill Global REIT is RHB’s top pick. Starhill Global REIT has been going through challenging times, having been hit by tough retail markets in both Singapore and overseas markets. However, RHB thinks that a turnaround is on the cards with stabilisation of Orchard Road retail malls, a pick-up in Singapore office rents and asset enhancement completions acting as catalysts. According to RHB, Starhill Global REIT’s valuation of 0.7 times price-to-book value and dividend yield of at least seven percent makes it an attractive buy for investors.
BUY, TP $0.80; Current share price $0.675
- OUE Hospitality Trust
OUE Hospitality Trust’s key hotel assets (Mandarin Orchard Singapore and Crowne Plaza Changi Airport) registered healthy 1H18 performance after the recent quarterly result announcement. The improvement can be attributed to higher room rates as hoteliers have started gaining pricing power amidst a reduction in hotel supply. With a strategically located Singapore hospitality portfolio, RHB believes that OUE Hospitality Trust offers investors a good proxy to ride the hospitality sector recovery.
Similar to Starhill Global REIT, OUE Hospitality Trust also offers an attractive dividend yield of at least seven percent for the next two years. Should visitor arrival growth to Singapore grow faster than the expected 4-7 percent, OUE Hospitality Trust could surprise positively.
BUY, TP $0.80; Current share price $0.685
Getting Defensive With REITs (Part 1)