To recap, SG REIT’s manager recently posted a 7.6% lower 3Q18 DPU of 1.09 cents, marking its seventh consecutive quarter of y-o-y decline, driven by operational weakness from Singapore and Australia, as well as higher withholding taxes from Australia and Malaysia.
In a Tuesday report, analyst Andy Wong notes that while SG REIT is trading at FY19F distribution yield of 7.1% as of its Monday closing price of 66 cents, this is still slightly below its ten-year average forward yield of 7.2%.
He also highlights that the REIT has underperformed its peers with total returns of -12.2% YTD.
Wong attributes the unit price underperformance to tepid DPU performance and a challenging near-term outlook, which has prompted OCBC to lower FY18 and FY19 DPU forecasts by 5.7% and 6.5%, respectively, after accounting for lower rental assumptions, higher effective tax rate and weaker AUD assumptions.
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“Our revised forecasts reflect our expectations of continued softness in SGREIT’s DPU growth outlook in the near-term (4QFY18F: -4.3% YoY; FY18F: -6.7%). Thereafter, we project FY19F DPU to recover 2.1% due to maiden contribution from UNIQLO at its Arcade Plaza and a full-year contribution from Markor International, a furniture manufacturer and retailer, at its China property,” explains Wong.
On the larger S-REITs sector outlook, he comments: “We retain our cautious stance on the S-REITs sector, and view the relatively more hawkish statement by the FOMC last week as a potential dampener to sentiment ahead.”
As at 11.50am, units in SG REIT are trading flat at 66 cents.
