Compiled by Navin Sregantan
| HOLD (DOWNGRADED)
APRIL 10 CLOSE: $0.53
FAIR VALUE: $0.55
OCBC Investment Research, April 10
ESR-Reit has posted total returns of 9.76 per cent as at April 9 since our initiation on Dec 14 last year, compared with the Straits Times Index's 7.41 per cent.
ESR-Reit continues to trade at a discount to industrial Reits that also have large industrial portfolios, but this has narrowed significantly since our initiation.
We note that Hyflux Membrane is one of ESR-Reit's top 10 tenants, accounting for around 3.5 per cent of the total rental income for December 2018 and about 7.2 per cent of distributable income for Q4 2018.
In recent months, exposure to this tenant has become a concern given Hyflux's filing for bankruptcy protection.
While we note various mitigating factors for ESR-Reit, we update our property forecasts to account for a potential Hyflux Membrane rental default.
Looking ahead, we look forward to a bottoming in industrial rents in the latter half of 2019 but keep an eye on the risk of equity financing.
| BUY (MAINTAINED)
APRIL 10 CLOSE: $1.87
TARGET PRICE: $2.30
DBS Equity Research, April 10
We raised our target price due to Frasers Property's limited exposure to the Singapore residential property and its strong recurring income profile as a landlord in the commercial space.
Its valuation remains attractive and its dividend yield is the highest among developers.
With the rise of Frasers Property's Reits share prices, we see a window of opportunity for the group to capitalise on this to grow their Reits assets under management (AUM).
One strategy will be to recycle mature assets into its listed Reits to grow their AUM and at that same time, re-allocate funds towards higher return investments.
Potential catalysts are asset monetisation, improved property sales, and improving free float and liquidity.
The joint acquisition a controlling stake of 66.6 per cent in PGIM Real Estate Asia Retail Fund by Frasers Property and Frasers Centrepoint Trust (FCT) is a positive, with the strategic benefit outweighing the financial benefit.
The potential Singapore pipeline available for FCT could not only bulk up but see FCT demanding for a higher premium to net asset value.
Key risks to our view is Frasers Property's dependence on the outlook of the Australian real estate market and currency.
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