Thailand
Thai Reits face bittersweet times as pandemic curbs end amid rising inflation, rate hikes
THAILAND’S real estate investment trusts (Reits), deemed one of the barometers for South-east Asia’s wider economic performance, are feeling the heat from surging inflation and rate hikes, just as the tourism-dependent nation tries to lure visitors back since it lifted all Covid-19 travel curbs.
According to Bloomberg data, there are more than 50 Reits and property funds listed in Thailand – more than the 40-odd in Singapore, which is seen as the largest Reit market in Asia outside of Japan.
Nearly three-quarters of Thailand’s 20 biggest Reits and property funds by market capitalisation have generated negative total returns in the year to date.
Pandemic-related border closures have wreaked havoc on retail Reits such as CPN Retail Growth Leasehold Reit (CPNREIT) – Thailand’s largest Reit with a market cap of 48.8 billion baht (S$1.9 billion) as at Jul 7. The Reit has generated a total return of negative 3.7 per cent so far this year.
“The easing of border restrictions bodes well for Thailand’s tourism-dependent economy to have a more sustained pickup in its growth pace,” said UOB economist Enrico Tanuwidjaja.
Thai authorities said sometime in late June that tourist arrivals had surpassed 2 million, as Thailand rolled back most of its pandemic-related curbs on travel and businesses.
“(The) official target for inbound tourists is set at around 9.5 million visitors this year, a far cry from 2019’s approximately 40 million,” Tanuwidjaja noted.
The fate of Thailand’s tourism industry will also hinge on the state of the Covid situation in China. According to official data, Chinese tourists made up almost 30 per cent of the total of 40 million tourists in Thailand in pre-pandemic 2019.
Meanwhile, industrial Reits have also been reeling from the impact of rising inflation and interest rates.
Maybank analyst Vanida Geisler noted that 2 of the biggest industrial Reits in Thailand – Frasers Property Thailand Industrial Freehold & Leasehold Reit (FTREIT) and WHA Premium Growth Freehold and Leasehold Reit (WHART) – have underperformed the market.
While the Thai property fund/Reit index fell 10 per cent in the year to Jun 27, FTREIT and WHART saw their unit prices tumble 18 per cent and 20 per cent respectively over the same period, Geisler said in a recent report.
And with a higher interest rate environment expected in the second half of the year, the Thai Reits may continue to face more pressure.
“We expect the pace of economic growth to pick up in the latter part of this year, underpinned by more sustained and higher tourism inflows that will further support the recovery of domestic household spending amid a tight labour market and expansionary fiscal and monetary policies,” Tanuwidjaja said.
However, he added: “Inflationary effects from the supply chain disruptions stemming from China’s stringent Covid-19 policy as well as the Russia-Ukraine conflicts pose downside risks to growth.”
To help tame the rising inflation, economists expect the Thai central bank to hike policy interest rates by “as early as September 2022”.
“Strong inflationary pressure is a concern for the Bank of Thailand (BoT),” said RHB senior economist Barnabas Gan. “We expect headline and core inflation momentum to remain elevated in the next few months before slowing at year-end.”
Gan said the BoT is likely to increase the policy interest rate by 25 basis points (bps) to 0.75 per cent by September, followed by another 50 bps hike to 1.25 per cent next year.
UOB’s Tanuwidjaja, meanwhile, forecasts that the BoT will hike rates in November, but does not rule out the possibility that the first rate hike could be delivered earlier in August or September – “especially if inflationary pressure remains stubbornly high”.
Maybank economist Lee Ju Ye has an even more pessimistic view. Lee expects the BoT to raise the policy rate twice this year to 1 per cent by year-end – with the first hike at the next meeting in August and the second likely in Q4.
Despite expectations of a recovery on the back of an economic reopening, Maybank’s Geisler has trimmed her target prices on the Reits “to reflect rapid rises in interest rates and inflation”.
While retail landlord CPNREIT is poised to be one of the biggest beneficiaries of Thailand’s reopening, Geisler has cut her target price for the counter to 19.40 baht, from 23 baht previously.
“Despite an expected strong 300 per cent year-on-year recovery in FY2022 forecast earnings after reopening of the economy, we downgrade CPNREIT to ‘hold’… as it is highly sensitive to the interest rate upturn,” she said.
Meanwhile, Geisler has upgraded WHART to “buy” with a lower target price of 11.40 baht, from “hold” with a target price of 12.12 baht previously.
“WHART’s share price has dropped 20 per cent year-to-date amid concern about the interest rate upturn. This is despite double-digit earnings growth for FY2022-2023,” Geisler said, noting that the Reit is trading at a “deep discount”.
DBS also has a “buy” recommendation on WHART, with a target price of 12.30 baht.
“(WHART’s) share price weakness presents a buying opportunity,” said analyst Chanpen Sirithanarattanakul, noting that some concerns behind the tumble include the spike in the 10-year treasury yield and a potential cash call at a discount to market value to fund the acquisition of new assets.
“The stock now offers a decent yield of 7.7 per cent in 2022 and 7.8 per cent in 2023, payable quarterly,” she added.
At the same time, Maybank’s Geisler has maintained her “hold” call on FTREIT with a lower target price of 11.20 baht, from 12.30 baht previously, due to an “unexciting outlook”.
DBS’s Chanpen, however, has a “buy” recommendation on FTREIT with a target price of 12.50 baht.
“As Thailand’s largest Reit with a total net leasable area (NLA) of 2.1 million square metres (sq m) in factories and warehouses, FTREIT should be a prime beneficiary of the relocation of factories from China to countries in South-east Asia, including Thailand,” she said. “While there could be a near-term hiccup due to the travel restrictions amid the Covid-19 pandemic, we believe that its long-term outlook remains solid.”
Source: https://www.businesstimes.com.sg/asean-business/thai-reits-face-bittersweet-times-as-pandemic-curbs-end-amid-rising-inflation-rate