SINGAPORE (March 7): OCBC Investment Research is maintaining its “overweight” on local REITs identifying bright spots in certain sub-sectors as well as the potential for bargain hunting even as the sector begins to pullback.
In a Monday report, lead analyst Andy Wong Teck Ching says the sector is undergoing a challenging environment with distribution per unit (DPU) growth for 4QCY16 registering a 2% fall from a year ago.
Wong says softness in the sector was largely broad-based with declines recorded for hospitality (–4% y-o-y), retail (–1.9% y-o-y) and office (–1.3% y-o-y) sub-sectors.
Meanwhile, industrial REITs turned in a flat performance (0.1% y-o-y), with dips in DPU seen only from Cache Logistics Trust and Soilbuild Business Space REIT.
But that doesn’t mean investors should avoid SREITs altogether, says Wong.
“Within the office space, a second consecutive quarter of positive net absorption islandwide was recorded in 4Q16. For retail, retail sales growth excluding motor vehicles came in at 0.3% y-o-y for the month of December, the first positive monthly y-o-y growth since January 2016.”
“As for the industrial sub-sector, Singapore’s PMI has stayed above 50 for three straight months, with January’s 51.0 reading the highest since November 2014.”
Wong insists SREITs still warrant a strategic position in investors’ portfolio, given uncertainties over the geopolitical environment and sustainability of the global economic recovery, especially as bargain hunting opportunities reveal themselves.
Wong’s “buy” picks remain unchanged from his last recommendation in a REITs strategy report dated Dec 7, 2016.
They are Frasers Centrepoint Trust, Keppel DC REIT, Ascendas REIT, Frasers Logistics & Industrial Trust and Mapletree Greater China Commercial Trust.
KDCREIT is also a potential laggard play following recent share price underperformance, supported by healthy valuations and expected strong FY17F DPU growth.
