SREIT – UBS

SREIT valuation guide

Overview

This report summarises key statistics on valuations, performance and the capital structure of REITs listed on the SGX. There are now 22 REITs, with a total market cap of US$23.3bn. Year-to-date, SREITs have outperformed developers by 7.7%.

Key statistics

We estimate SREITs are trading at 6.2% 2010 yield (+424bp to 10Y government bonds). We expect SREIT distribution per unit (DPU) growth of 2.9% p.a. (2010- 14E), with hospitality and retail REITs leading growth at 6.0% and 4.0%, respectively. Our price target for the sector implies 10% upside from the current share price.

Corporate news: hospitality, MLT acquisition, Q2 reporting season

Singapore's tourism sector set a new record with inbound visitors crossing the one million mark in a single month. The July milestone marks eight consecutive months of record arrivals. Elsewhere in logistics, Mapletree Logistics Trust deepened its presence in Japan through a S$200m acquisition of three distribution centres in the Kanto region of Greater Tokyo. The acquisition raises its Japan contribution from 17.8% of gross revenue to 23.7%. Meanwhile, Savills Singapore expects serviced apartment rental rates for the high- and mid-tier segments to increase by 5-10% this year after sliding 22% in 2009. The Q2 reporting season has been strong so far, with around 80% of SREITs under coverage reporting earnings that are either in line with forecasts or higher than expected.

Buy retail REITs FCT, Starhill and Suntec, and CDL Hospitality REIT

We like CDL Hospitality Trusts (CDLH) as it is the most liquid proxy of the tourism recovery and Starhill Global REIT, Frasers Centrepoint Trust (FCT) and Suntec REIT as they are beneficiaries of improved retail consumer spending.