SREITs – OCBC

1Q10 results preview

In 1Q10, YoY DPU improvements for most... The majority of the S-REIT universe will report 1Q CY10 results over the next two weeks, with CapitaCommercial Trust (CCT) kicking off the season on 16 Apr. Within our coverage universe, we expect Ascott Residence Trust (ART) to show a YoY improvement in DPU on the back of stronger occupancy rates and RevPAU1 . Based on our estimates, Mapletree Logistics Trust and Frasers Centrepoint Trust (FCT) could also see a YoY pick-up in DPU for the quarter due to a boost from recent acquisitions. FCT’s earnings in the preceding year were also impacted by asset works. CapitaMall Trust may also post a YoY increase in DPU as the REIT retained part of its distributable income in 1Q09. We expect Ascendas REIT to report stable operating performance, with this quarter’s DPU up 2.8% YoY.

…but not all. On the other hand, we expect Suntec REIT to report a YoY decline in DPU due primarily to a larger unit base (roughly 1.8b units now versus 1.6b units a year ago). We also estimate that CCT may record a YoY fall in DPU due to dilution from its 2009 rights issue. Meanwhile the Indonesian Rupiah continues to re-rate strongly (6596 IDR/SGD on average in 1Q10 versus 7701 IDR/SGD in 1Q09). The IDR’s ascent over the hedged rate employed by LMIR Trust could impact YoY DPU performance despite a stronger portfolio that has seen steady improvements in occupancy.

Leaping or waiting? Our primary focus this season is on the tone of manager guidance. REIT managers have been fairly aggressive and opportunistic in 2010 so far, with a sizeable S$1,218m worth of acquisitions announced year-to-date. The equity market was also active with FCT’s S$182.2m placement and the listing of Cache Logistics Trust [NOT RATED], whose S$417.3m IPO was 7.8x subscribed. The question is what happens next – market worries about how the second half of this year pans out have been well-documented and the consensus view is for a rather benign economic recovery. How this corresponds to/deviates from REIT managers’ guidance of individual earnings performance will be important to watch. Additionally, the delicate balance between 2H10 uncertainties and market appetite may prompt REIT managers to launch acquisition/fund raising plans sooner rather than later. How managers lay out acquisition and debt re-financing plans will also be worth tracking, in our view. We maintain our OVERWEIGHT stance on the sector. Top picks are ART and Suntec.