SINGAPORE (May 31): DBS Group Research says this could be a good time to scoop up S-REITs of selected office and hotel names given supply pressures in these sub-sectors have eased.
In a Thursday report, lead analyst Mervin Song says the oversupplied market over the past few years which resulted in muted S-REIT performance and decline in DPUs for several REITs has given way to a turnaround in the Singapore property market.
Leading the way is the office sector with Grade A CBD office rents rising faster than expected to $9.70 psf per month and close to DBS’s year-end target of $10 psf per month. Leasing enquiries have picked up and this trend is also starting to occur in the industrial sector.
The retail sector, which many investors have shun, is showing green shoots with a rebound in retail sales; and CapitaLand Mall Trust reported positive rental reversions in over a year. Finally, hotels in Singapore are reporting a y-o-y increase in revenue per available room (RevPAR) for the first time in over two years.
Excluding IPOs, S-REITs have raised close to $4.0 billion in the last five months, which has been one of the busiest periods for S-REITs since 2011. Most of the proceeds have been channeled into acquisitions, which cements a steady 1-2% rise in DPU over 2018-2019.
However, since April 2018, the S-REIT index -- which includes distributions -- is down 2.4% partially attributed to investors pricing in the impact of four rate hikes versus three previously, and also rotation among various S-REITs in view of the strong takeup seen in recent fundraisings.
Looking ahead, while the timing of further fundraisings is hard to predict, Song believes the majority of the large equity raisings are likely behind us.
With nascent signs of a sustainable recovery in the Singapore property market boosted by an inorganic strategy, Song believes this should result S-REITs in rallying with yield spreads compressing to 3.0% from 3.4% currently.
“We believe it is time to accumulate Capitaland Commercial Trust ($2.10 target price), Suntec REIT ($2.30), Frasers Commercial Trust ($1.65), and CDL Hospitality Trusts ($2.00),” says Song.
“We also like Ascendas REIT ($3.00 target price) given exposure to the potential turnaround of the industrial sector. Finally, Frasers Centrepoint Trust (TP S$2.45) remains a favourite, given strong near term DPU growth outlook.”
As at 10.52am, units in CCT, Suntec REIT, FCOT, CDL-HT, A-REIT and FCT at $1.70, $1.80, $1.38, $1.67, $2.65 and $2.22 respectively.
