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Singapore office REITs - Rent growth may not fully translate to DPU growth

Shared By Stock Fanatic on Saturday, July 14, 2018 | 14.7.18

● Our channel checks suggest that 
(1) while there has been some expansion from the existing tenants, this has been partly offset by tenants giving back space. 

(2) Coworking space has been a key demand driver. 

(3) Landlords have continued to raise asking rents, although take up has slowed partly due to tenants starting to show resistance to the higher rents. Read More

Over the next two years, office expiries will account for 19-29% of Office REIT portfolios, implying that an average 10% reversions would add only ~2-3% of DPU growth, spread over two years.

However, office REIT DPU growth will be mitigated by several factors. For CCT and KREIT, returning Bugis Village and lower income support will likely be the key losses of income in 2019. For SUN, current capital distributions imply that higher rents will be offset by lowering capital distributions. Meanwhile, SUN and KREIT are amongst the most sensitive to the rising borrowing cost.

● We remain cautious on the office REITs, while they have underperformed YTD; yield spreads are still similar to the previous upcycle. CCT and KREIT are least preferred.

Source : Credit Suisse Asia Pacific Equity Research
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Posted on Saturday, July 14, 2018 | 14.7.18
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