Singapore REITs - Recommendations
S-REITs offer significant value vis-à-vis major REIT markets
- Comparing the distribution yields of the major REIT markets using the FTSE EPRA/NAREIT REIT indices against their respective 10-year Government bond yields, we note that S-REITs offer significant value vis- à-vis their peers.
- The yield spread of S-REITs currently stands at 421 bps, which is only lower than Europe (441 bps), but higher than Japan (379bps), Hong Kong (343bps), Australia (258bps) and U.S. (207bps).
Valuations not demanding; maintain OVERWEIGHT
- Given the recent volatility in sovereign bond yields, the FSTREI is trading at a forward yield spread of 428 bps against the Singapore Government 10-year bond yield, which is slightly below the 5-year average of 440 bps.
- However, with continued vagaries in the geopolitical and macro landscape, we believe good quality defensive yield assets should still warrant a strategic position in investors’ portfolio. Moreover, on a standalone basis, the FSTREI blended forward distribution yield currently stands at 6.64%, which is approximately 0.4 standard deviation (SD) above its 5-year average of 6.45%; while forward P/B ratio of 0.94x is 0.4 SD below the 5-year mean of 0.98x.
- In light of the aforementioned factors, we believe sector valuations are not demanding, and thus maintain our OVERWEIGHT rating on the SREITs sector.
- The year ahead is likely to remain volatile, and we believe investors should be nimble and position themselves for bargain hunting opportunities when the sector experiences a pullback.
- Our preferred sector picks are Frasers Centrepoint Trust [BUY; FV: S$2.33], Keppel DC REIT [BUY; FV: S$1.35], Ascendas REIT [BUY; FV: S$2.67], Frasers Logistics & Industrial Trust [BUY; FV: S$1.10] and Mapletree Greater China Commercial Trust [BUY; FV: S$1.15].