UOB Kay Hian analyst Jonathan Koh is still “overweight” on the Singapore REITs (S-REITs) sector despite the elevated inflation dominating headlines.
Koh also remains overweight on all the S-REIT sub-sectors except for healthcare S-REITs, for which he has given a “market weight” rating.
“Markets remained concerned with elevated inflation with US consumer price index (CPI) at 8.3% for August. The yield for 10-year Singapore government bonds rose 16 basis point to 3.16%, a whisker away from the recent peak of 3.24% set in mid-June,” Koh notes in his report dated Sept 16.
While the period is seen as a “tumultuous” time for the sector, the analyst sees S-REITs as still “resilient” due to their “stable cash flows”.
In the past two weeks, the FTSE ST Real Estate Investment Trusts Index (FSTREI) saw a small gain of 0.5% but underperformed the benchmark Straits Times Index (STI) which gained 1.4%.
To this end, the analyst sees investors as likely to turn their attention to S-REITs when economic growth and inflation start to moderate “more meaningfully”.
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Among the REITs, Mapletree Pan Asia Commercial Trust (MPACT) was the top outperformer, gaining 2.7% as Festival Walk will benefit from the ending of hotel quarantine requirements in Hong Kong in November.
New economy plays such as Digital Core REIT, Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT) gained 3.3%, 1.8% and 1.2% during the two weeks respectively.
Frasers Hospitality Trust (FHT) was the top underperformer, losing 22.9% after its privatisation plans lapsed. IREIT Global, Elite Commercial REIT and Cromwell European REIT, with exposure predominantly to European real estate, declined 6.3%, 5.1% and 1.9% respectively. Meanwhile, US REITs Prime US REIT and Keppel Pacific Oak US REIT also declined 2.4% and 2.3%.
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Koh’s bottom-up and diversified picks are Frasers Centrepoint Trust (FCT), Lendlease Global Commercial REIT (LREIT), MINT and MLT. All four REITs have “buy” calls with target prices of $2.74, 99 cents, $3.36 and $2.08 respectively.
As at 10.53am, units in FCT, LREIT, MINT and MLT are trading at $2.27, 80.5 cents, $2.56 and $1.70 respectively.
