Singapore REITs - RHB Invest 2016-06-22: Premium Grade A+ office rents decline 3.6%qoq in 2Q16

ASCENDAS REAL ESTATE INV TRUST A17U.SI CAPITALAND MALL TRUST C38U.SI FRASERS CENTREPOINT TRUST J69U.SI OUE HOSPITALITY TRUST SK7.SI

REITs - Premium Grade A+ office rents decline 3.6%qoq in 2Q16

Premium Grade A+ office rents (Marina Bay/Raffles area) fell 3.6%qoq during 2Q16 to SGD9.88psf compared to SGD10.25psf in the previous quarter, according to Knight Frank. The latest drop also marks the fifth consecutive qoq drop since the recent peak in 1Q15 at SGD11.49psf.

The fall in rents doesn't come as a surprise as the office sector has been grappling with supply glut issue since early 2015. We expect the supply- demand dynamics to remain unfavourable in the near-term as an average c.2m sq ft of office space is expected to be completed in the next 3 years compared to 10-year average demand of 1.2m sq ft.
We maintain Neutral on the office REITs sector as we expect spot rents to fall further. However, the office REITs sector currently trades at a high FY16 dividend yield of 6-7%, which would provide support to its share price.
Among the REIT space, we like the resilient retail subsector as rental positive reversions are likely to persist. We also like the hospitality subsector as there is an increasing number of new events in 2016. Our Top Picks are Ascendas REIT (BUY TP:SGD2.63), CMT(BUY TP:SGD2.36), FCT(BUY TP:SGD2.22) and OUEHT(BUY TP:SGD0.86).

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-06-22

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.63 Same 2.63

BUY Maintain BUY 2.37 Same 2.37

BUY Maintain BUY 2.22 Same 2.22

BUY Maintain BUY 0.86 Same 0.86