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Get Defensive With REITs But Be Selective
Following the Fed committee’s view that inflation has no signs of overshooting above two percent, the market is now of the view that the gradual process of normalisation remains appropriate. This led to the easing of bond yields. In Singapore, the Singapore government 10-year bond yield has eased since peaking in May.
OCBC Strategy: Get Defensive With REITs, But Be Selective
As bond yield eases, OCBC is seeing some respite in demand for S-REITs in the near term. On top of that, the ongoing macroeconomic uncertainties emanating from the US-China trade friction. This will further drive investors’ flight to safety to REITs. Going forward, OCBC believes that S-REITs can warrant a strategic position in investors’ portfolio, albeit in a selective manner. From a tactical positioning, OCBC also prefers S-REITs ahead of SG developers.
According to OCBC, there are three defensive REITs that warrant a strategic position in investors’ portfolio.
Investors Takeaway: 3 Top Class Defensive REIT Picks That Deserves A Strategic Position In Your Portfolio
Keppel DC REIT
Keppel DC REIT completed 1H18 with a slightly disappointing report card on the acquisition end. It only managed to complete the acquisition of a 99-percent interest in Keppel DC Singapore 5 (KDC SGP5). Looking ahead, OCBC notes that the manager of Keppel DC REIT continues to be on the lookout for further inorganic growth opportunities in both existing and new markets. Given its healthy gearing, Keppel DC REIT has ample debt headroom to make more distribution per unit (DPU) accretive acquisitions. This would be further supported by favourable borrowing environments in markets like Europe and Australia.
BUY, TP $1.54; Current share price $1.35
Frasers Centrepoint Trust
Frasers Centrepoint Trust’s Northpoint City North Wing recently underwent an asset enhancement initiative (AEI) to integrate with the newly built South Wing. The façade and tenant mix of North Wing were also refreshed after the AEI. Despite only opening in December 2017, South Wing has achieved a high occupancy rate with good rentals. In the next 1-2 years, South Wing will be connected to the upcoming Yishun bus interchange and the upcoming community centre. This should further increase traffic flows into Northpoint City.
Frasers Centrepoint Trust’s other northern based mall, Causeway Point, is also slated to experience stronger traffic. Causeway Point is planning to construct an underground pedestrian link to Woods Square. The manager is forecasting positive return on investment from the underground pedestrian link construction, which will increase traffic flow into the mall when Woods Square. Furthermore, with the upcoming Thomson-East Coast MRT line where Woodlands MRT will be the interchange, higher traffic flow into the mall can be expected.
CIMB highlights that Frasers Centrepoint Trust has a resilient portfolio that will continue to excel in the current economic environment. CIMB is forecasting for better performance from Frasers Centrepoint in FY21-22 after factoring in stronger growth for Causeway Point and Northpoint.
BUY, TP $2.49; Current share price $2.25
Frasers Logistics & Industrial Trust
In 2Q18, Frasers Logistics & Industrial Trust’s (FLT) core market (Australia) showed signs of robust GDP growth. This bodes well for the logistics sector, which should in turn support business for logistics players, i.e. FLT’s tenants.
On the portfolio end, FLT underwent a portfolio refresh through some capital recycling activities. FLT completed the divestments of its Lot 102 Coghlan Road and 80 Hartley Street properties. Both were sold at an attractive premium of 36.7 percent and 40.3 percent above their book values respectively. The proceeds were used to fund the
acquisition of two new properties, namely 3 Burilda Close in New South Wales and 103-131 Wayne Goss Drive in Queensland. Both properties possessed good net property income yield of 6.1 percent and 6.8 percent respectively.
BUY, TP $1.18; Current share price $1.08
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