All 22 S-REITs under OIR’s coverage have announced their 4QCY14 results. With the exception of Ascendas REIT, which missed our estimates slightly, all the other REITs’ financial performance came in within our expectations. In terms of DPU growth, only Far East Hospitality Trust recorded negative YoY growth (-9.9%), while the remaining 21 REITs under our coverage turned in positive DPU increments. For Budget 2015, it was announced that the package of income tax and GST concessions for REITs, which was originally scheduled to lapse on 31 Mar 2015, will be extended until 31 Mar 2020. However, the stamp duty concession will be allowed to lapse after 31 Mar 2015. Although this will increase future acquisition costs, we believe it will not have a significant impact on the sector. We maintain NEUTRAL on the S-REITs sector, and prefer a bottom-up stock picking strategy. Frasers Centrepoint Trust, Frasers Commercial Trust and Starhill Global REIT are our top sector picks.
4QCY14 earnings season review
All 22 S-REITs under OIR’s coverage have announced their 4QCY14 results. With the exception of Ascendas REIT [HOLD; FV: S$2.42], which missed our estimates slightly, all the other REITs’ financial performance came in within our expectations. In terms of DPU growth, only Far East Hospitality Trust [HOLD; FV: S$0.82] recorded negative YoY growth (-9.9%), while the remaining 21 REITs under our coverage turned in positive DPU increments. The notable strong performers were Lippo Malls Indonesia Retail Trust and Frasers Commercial Trust (FCOT), which posted YoY DPU growth of 26.8% and 20.1%, respectively.
Three out of four tax concessions extended during Budget 2015
During the Budget 2015 speech by Finance Minister Tharman Shanmugaratnam, it was announced that the package of income tax concessions for REITs, which was originally scheduled to lapse on 31 Mar 2015, will be extended until 31 Mar 2020. These include the concessionary income tax rate of 10% for qualifying foreign non-individual investors and tax exemption on qualifying foreign-sourced income for listed REITs. The GST concessions for REITs (also scheduled to lapse on 31 Mar 2015) have also been extended for another five years. This move highlights the Government’s intention to support the listing of REITs in Singapore by keeping its tax regime competitive. However, the stamp duty concession will be allowed to lapse after 31 Mar 2015. This implies that REITs acquiring properties in Singapore will now have to pay stamp duties of ~3% after the expiry of the concession. While this will cause acquisition costs to be higher and make accretive acquisitions harder to find, we believe it will not have a significant impact on the sector. REITs with 100% exposure to Singapore include CapitaMall Trust (CMT), Frasers Centrepoint Trust (FCT), Mapletree Industrial Trust, CapitaCommercial Trust, Far East Hospitality Trust, OUE Hospitality Trust, Soilbuild REIT and SPH REIT.
Maintain NEUTRAL on S-REITs sector
We maintain NEUTRAL on the S-REITs sector, as the operating landscape remains challenging, particularly for the industrial, hospitality and retail sub-sectors, while uncertainty over interest rate movements could result in volatility for the sector. The U.S. 10-year Treasury bond yield has recently seen a spike from 1.81% on 16 Jan 2015 to 2.06%. We prefer a bottom-up stock picking strategy, and retain FCT [BUY; FV: S$2.27] and Starhill Global REIT [BUY; FV: S$0.93] as our top sector picks. Following our downgrade of CMT [HOLD; FV: S$2.21] on 26 Jan 2015 on valuation grounds, we replace it with FCOT [BUY; FV: S$1.65] as another of our preferred pick.
All 22 S-REITs under OIR’s coverage have announced their 4QCY14 results. With the exception of Ascendas REIT [HOLD; FV: S$2.42], which missed our estimates slightly, all the other REITs’ financial performance came in within our expectations. In terms of DPU growth, only Far East Hospitality Trust [HOLD; FV: S$0.82] recorded negative YoY growth (-9.9%), while the remaining 21 REITs under our coverage turned in positive DPU increments. The notable strong performers were Lippo Malls Indonesia Retail Trust and Frasers Commercial Trust (FCOT), which posted YoY DPU growth of 26.8% and 20.1%, respectively.
Three out of four tax concessions extended during Budget 2015
During the Budget 2015 speech by Finance Minister Tharman Shanmugaratnam, it was announced that the package of income tax concessions for REITs, which was originally scheduled to lapse on 31 Mar 2015, will be extended until 31 Mar 2020. These include the concessionary income tax rate of 10% for qualifying foreign non-individual investors and tax exemption on qualifying foreign-sourced income for listed REITs. The GST concessions for REITs (also scheduled to lapse on 31 Mar 2015) have also been extended for another five years. This move highlights the Government’s intention to support the listing of REITs in Singapore by keeping its tax regime competitive. However, the stamp duty concession will be allowed to lapse after 31 Mar 2015. This implies that REITs acquiring properties in Singapore will now have to pay stamp duties of ~3% after the expiry of the concession. While this will cause acquisition costs to be higher and make accretive acquisitions harder to find, we believe it will not have a significant impact on the sector. REITs with 100% exposure to Singapore include CapitaMall Trust (CMT), Frasers Centrepoint Trust (FCT), Mapletree Industrial Trust, CapitaCommercial Trust, Far East Hospitality Trust, OUE Hospitality Trust, Soilbuild REIT and SPH REIT.
Maintain NEUTRAL on S-REITs sector
We maintain NEUTRAL on the S-REITs sector, as the operating landscape remains challenging, particularly for the industrial, hospitality and retail sub-sectors, while uncertainty over interest rate movements could result in volatility for the sector. The U.S. 10-year Treasury bond yield has recently seen a spike from 1.81% on 16 Jan 2015 to 2.06%. We prefer a bottom-up stock picking strategy, and retain FCT [BUY; FV: S$2.27] and Starhill Global REIT [BUY; FV: S$0.93] as our top sector picks. Following our downgrade of CMT [HOLD; FV: S$2.21] on 26 Jan 2015 on valuation grounds, we replace it with FCOT [BUY; FV: S$1.65] as another of our preferred pick.
It is both challenging and also exciting to hunt for any property available for sale or to be kept for a rent. The conditions and also the perspectives vary with any local property of a buyer and also the investor based on the knowledge of the market related with real estate values. In Singapore investment property deals can be both profitable and also satisfactory.
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