SG REITS

SG REITS: Going against consensus view, Morgan Stanley highlighted that Singapore REITs are due for consolidation over the next 12-24-months, as it attempts to realise cost synergies, amidst a tougher fee income environment.

The broker believes that REIT consolidation is unavoidable and necessary for Singapore REITs to attain significant scale and stock liquidity, so as to better compete against global peers.

Additionally, an increasing trend of overseas acquisitions in recent times by local REITs suggests a lack of attractive acquisitions domestically, signalling that the local market is becoming saturated.

Experience from other mature REIT markets further reinforces the broker’s investment thesis, with one out of every five Australian REITs experiencing consolidation activity over the past 24 months.

The house suggests that REITs consolidation could eventuate via merging existing REITs together, or by the acquisition of REIT managers which will inherently grant the acquirer operational control of the REIT. In looking for possible candidates, Morgan Stanley opines that merging REITs under the same sponsor should face lesser resistance as they are generally controlled by the same parent company.

Overall, Maybank-KE has an Underweight rating on S-REITs due to the deteriorating fundamentals amid ample supply, softer demand, rising interest costs and stretched valuations.

Top Sells are CapitaLand Mall Trust (TP: $1.87) and Ascendas REIT (TP: $2.27). Preferred Buys are Mapletree Industrial Trust (TP: $1.77), Cache Logistics Trust (TP: $1.33), Starhill Global REIT (TP: $0.93) and Keppel REIT (TP: $1.32).