SINGAPORE (May 29): UOB Kay Hian has raised target prices for Singapore real estate investment trusts (S-REITs) by an average of 8% on the back of a rosier economic outlook.
Terminal growth assumptions were increased by 60 basis points across UOB’s S-REIT coverage, excluding Frasers Logistics & Industrial Trust (FLT).
“This mirrors UOB Global Economics and Markets’ 60bp upward revision in 2017 GDP growth target (from 1.8% to 2.4%),” says UOB lead analyst Vikrant Pandey in a report on May 25.
“Despite the prospects of a rate hike in June, the market could likely view REITs as growth vehicles (instead of the more conventional yield play) and we opine that REITs could continue to be an attractive asset class,” Pandey adds.
The brokerage is keeping its “overweight” rating on S-REITs.
UOB’s top picks for the sector are Ascendas REIT (AREIT), CapitaLand Commercial Trust (CCT), and Frasers Logistics & Industrial Trust (FLT).
UOB is keeping its “buy” call on AREIT, and raising its target price to $2.97, from $2.75 previously.
As at 11.40am, units of AREIT are trading 4 cents lower at $2.58.
Pandey says AREIT’s business/science park and hi-tech portfolio, which makes up 48% of overall portfolio value, “will position it defensively against the slowdown in Singapore from the unprecedented simultaneous supply glut across other industrial segments.”
Meanwhile, CCT and FLT are favoured for their deep value and diversified portfolios.
CCT is kept on “buy” with a higher target price of $1.94, from $1.75 previously, while FLT remains a “buy” with an unchanged target price of $1.11 due to its pure Australian exposure.
As at 11.40am, units of CCT are trading 1.5 cents higher at $1.65, and units of FLT are trading 1.5 cents lower at $1.01.
At the same time, UOB has upgraded Frasers Centrepoint Trust (FCT) and Parkway Life REIT to “buy” on valuation grounds.
FCT has its target price raised to $2.26, from $2.15 previously, while Parkway Life REIT has its target price raised to $2.82, from $2.50 previously.
As at 11.40am, units of FCT are trading 1 cent higher at $2.11, and units of Parkway Life REIT are trading 1 cent higher at $2.59.
Meanwhile, UOB has downgraded Cache Logistics Trust to a “hold” on the back of lower occupancies at its multi-tenanted buildings.
However, it has increased its target price for Cache marginally to 96 cents, from 95 cents previously.
As at 11.40am, units of Cache are trading flat at 88.5 cents.
