SREITs – ML

S’pore REITs: High quality dividends and a strong currency

Singapore REITs have high single digit dividend yields that are relatively secure due to long lease tenure, conservative balance sheets and exposure to the property sector’s strong fundamentals.

In sum, this is a safe place to be.

CapitaCommercial Trust (CMIAF; S$2.12; B-1-7) Top pick for office sector, significantly undervalued. High organic growth from rental reversions.

We have a Buy rating on CCT and 12-month price objective to S$2.70/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.

Macquaire Meag Prime REIT (MQPRF; S$1.25; B-1-7) Top pick for retail sector. M&A target with near term potential to trade to NAV.

We are setting our price objective with reference to current NAV of S$1.61/share.The NAV is derived from 4% cap rates for Singapore office exposure and 5% cap rates for Singapore retail exposure. Risks are a downturn in the economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower than expected returns.

CDL REIT (CEHSF; S$2.33; B-1-7) Top pick for hotel sector. Singapore hotel room rates continue to rise, strong balance sheet.

We have a Buy rating on CDL Hospitality Trusts (CDLT) and a 12 month price objective of S$2.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.4%, an equity risk premium of 5.7% and a beta of 1.2. Risks are a downturn in the economy, higher interest rates, lower than forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.

Cambridge Industrial (XCMBF; S$0.70; B-1-7) Top pick for industrial sector. Most defensive asset class. Long lease expiries support income security.

We have a Buy rating on CREIT and a 12-month price objective of S$0.88/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk free rate of 3.0%, an equity risk premium of 5.7% and a beta of 1.0. Risks are a downturn in the Singapore economy, higher interest rates, lower-than-forecast rental and occupancy rates and the possibility that future acquisitions may provide lower-than-expected returns.

First REIT (FESNF; S$0.74; B-1-7) Investors reluctant to take Indonesian risk, yet the Indonesian stock market itself is one of the best

We have a Buy rating on First REIT and a 12 month price objective of S$0.84/share. Our price objective is based on our DCF valuation derived from 10 years of forecasts. Key assumptions include a risk-free rate of 5.5%, an equity risk premium of 7.1%, and a leveraged beta of 0.90. Risks to our price objective are an increase in short-term interest rates which may result in higher interest costs on existing borrowings; increases in long-term interest rates which could impact our DCF valuation due to the assumption of risk-free rates; and a deterioration in economic activity that may impact occupancy and rental growth of assets held within the investment portfolio.