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Having Faith In S-REITs

Lim Si Jie
Updated

Spike in the 10-year bond and fears over inflation have led to a sell-off among S-REITs in recent weeks. Some investors have raised concerns that this resembles the painful memories of 2013 where S-REITs plunged 22 percent. However, in DBS’s opinion, the recent sell-off is different and largely overdone. Instead, DBS recommends investors to continue keeping faith in S-REITs and invest in them at a discount.

REIT Fundamentals Intact With Sector Growing

Looking forward, DBS expects better economic growth and easing supply pressures to bring growth back to the S-REIT sector. The stronger property fundamentals are also supporting higher rentals and revenue per available room (RevPAR) and driving higher distribution growth rate.

DBS’ REIT Strategy: Buy On Weakness

Given DBS’s view that the increase in interest rate will be measured and controlled, the current share price weakness is an opportunity for investors to accumulate. According to DBS, investors should focus on property fundamentals rather than macro. DBS also notes that REIT valuations have now become more attractive, considering that the market is potentially at the start of a multi-year recovery in various sub-property markets.

Investors Takeaway: 8 REITs To Consider

In the large cap space, DBS has a preference for CapitaCom Trust and Suntec REIT. DBS also recommends large-cap industrial REITs such as Ascendas REIT (A-REIT) and Mapletree Logistics Trust for their steady performance with upside coming from potential acquisitions. Among the mid-cap REITs, CDL Hospitality Trusts, Frasers Commercial and Frasers Hospitality Trust are the top picks from DBS.

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  1. CapitaCom Trust

DBS likes CapitaCom Trust for its leverage to the multi-year recovery in the Singapore office market. While it currently trades at 1.0 time book value, DBS notes that CapitaCom Trust has the potential for multiples expansion during an upcycle. Potentially, DBS foresees CapitaCom Trust to trade up to 1.2 times book value.

BUY, TP $2.10. Current share price $1.81

  1. Suntec REIT

Suntec REIT is also identified by DBS as a play on the turnaround of Suntec Mall and recovery on the Singapore office market. Given the potential upside from a takeover, Suntec REIT holders could be in for a pleasant surprise.

BUY, TP $2.30. Current share price $1.92

  1. Frasers Centrepoint Trust

Following the completion of its asset enhancement initiative of NorthPoint, DBS foresees strong DPU growth for Frasers Centrepoint Trust in 2018.

BUY, TP $2.48. Current share price $2.18

  1. CDL Hospitality Trusts

Similar to Frasers Centrepoint Trust, CDL Hospitality Trusts is also riding on the multi-year recovery in the Singapore hospitality market.

BUY, TP $2.00. Current share price $1.69

  1. Frasers Hospitality Trust

Frasers Hospitality Trust is now in an enviable position where it is leveraged to the upturn in the Singapore, Melbourne and Sydney hospitality markets. Higher-than-average yields compared to other hospitality REITs should be expected in the coming year.

BUY, TP $0.89. Current share price $0.785

  1. A-REIT

A-REIT has always been a steady and consistent performer due to its large scale. While A-REIT was recently impacted by the lack of a CEO, the overhang has been largely dismissed as A-REIT appointed Mr William Tay to take on the mantle. Mr Tay was Ascendas-Singbridge Group’s Deputy CEO of Singapore and South-East Asia, as well as CEO of South Korea, before assuming the position of CEO of A-REIT.

BUY, TP $2.85. Current share price $2.66

  1. Mapletree Logistics Trust

Among the S-REITs, Mapletree Logistics Trust has a wide geographical footprint with property in Singapore, Japan, Hong Kong, South Korea, China, Australia, Malaysia and Vietnam. DBS notes that the outlook on Mapletree Logistics Trust’s key markets is widely positive. Moreover, DBS views its recent acquisitions as a potential source of boosting distribution per unit (DPU) in the near term.

BUY, TP $1.45. Current share price $1.19

  1. Frasers Commercial Trust

Frasers Commercial Trust recent expansion into UK to kick-start its inorganic growth strategy has helped to allay concerns that the REIT is no longer growing. DBS believes that the inorganic growth strategy will also reduce Frasers Commercial Trust yield spread against other office REITs.

BUY, TP $1.71. Current share price $1.41