Compiled by Lynette Khoo, The Business Times
SPH REIT | BUY
TARGET PRICE: $1.07
OCT 10 CLOSE: $1.01
DBS Group Research, Oct 10
We believe that SPH Reit can continue to deliver resilience with sticky occupancies while its low gearing of 26 per cent empowers the manager to undertake value-accretive acquisitions.
The Q4 2017 results once again highlight the ability of SPH Reit to deliver steady distributions despite ongoing market uncertainties.
The catalyst will come when the manager executes on the purchase of Seletar Mall.
We believe timing of the acquisition of The Seletar Mall (around $500 million) from its sponsor is near and continue to price in the deal in our estimates.
We expect the deal to complete in 2019 (2018 previously), leading us to raise our target price from $1.04 to $1.07 on lower new equity issuance assumptions.
We believe the manager will utilise its significant debt-funded headroom, and now expect SPH Reit to raise $150 million (previously $200 million) via an equity fund raising exercise by the end of FY2018.
This will push up gearing slightly from 26 per cent to 32 per cent, which is still conservative compared to the peer average of 34 per cent.
Under a more aggressive debt-raising scenario, gearing could rise to 36 per cent with close to 10 per cent increase in DPU.
The counter offers a dividend yield of close to 5.5 per cent and price upside potential of 6 per cent.
FRASERS LOGISTICS & INDUSTRIAL TRUST (FLT) | ADD
TARGET PRICE: $1.20
OCT 10 CLOSE: $1.095
CIMB, Oct 9
FLT's ability to tap Frasers Centrepoint Limited's (FCL) Australian development pipeline and a favourable Australian industrial market are two key investment merits for the Reit.
This is especially crucial as there is an increasingly low availability of prime assets in Australia, mopped by capital chasing core assets.
This puts FLT at an advantage versus the other S-Reits which are diversifying into Australia.
Given FPA's development pipeline of A$850 million (based on completed value, S$897m), we believe FLT could maintain an acquisition rate of A$150-200 million over the next two years.
Thinking longer term (more than three years), as Australian property market peaks and contingent on market cycles, we cannot exclude the possibility that FLT could acquire European assets from Geneba Properties, FCL's newly acquired logistics and industrials platform.
Along with our distribution per unit upgrade by 2.8-4.6 per cent for FY2018-2019 and the rolling forward of our dividend discount model valuation, our target price is raised from $1.10 to $1.20.
We maintain our Add rating, projecting total returns of 17 per cent for FY2018 (upside of 10.3 per cent and FY2018 yield of 6.7 per cent).
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