Singapore REITs - DBS Group Research 2015-10-07: A breather from the Fed

Singapore REITs - DBS Group Research 2015-10-07: A breather from the Fed Singapore REIT MAPLETREE GREATER CHINACOMM TR RW0U.SI  CAPITALAND RETAIL CHINA TRUST AU8U.SI  FRASERS CENTREPOINT TRUST J69U.SI 

Singapore REITs - A breather from the Fed 

  • Big cap S-REITs key beneficiaries from an expected delay in rate lift-off and a more modest hike path in2016.
  • Retail REITs to weather uncertainties best as operational headwinds across most subsectors to persist.
  • Picks MAGIC, FCT and CRCT 

Delay in rate lift-off a booster for S-REITs in the immediate term. 

  • The weakness in jobs data from the US prompted DBS economists to revise our forecast for the FED to postpone their rate lift-off to 1Q16 (from Dec’15) and subsequent hikes to be more modest (2 more in 2016 vs 4 previously). 10-year UST and 10-year SG bonds have retreated by 30-40bps from year highs. 
  • We believe this to be a positive boost for S-REITs in the shorter term and big caps like (CMT, CCT, MINT, MCT, KREIT, SUN) should benefit. S-REITs currently offer an average FY16F yield of 7.0% and with yield spreads of 4.7% at close to its – 1 SD range, we see a comfortable buffer for investors to add at current levels. 

Retail REITs to perform best in the upcoming 3Q15 results. 

  • With a slowing economy, we believe operational headwinds will persist across most subsectors in the upcoming result but we expect the retail REITs retail REITs retail REITs to be the most resilient. 
  • FCT and MCT will likely be the top performers amongst peer group given strong foot traffic and sustained tenant sales given their unique mall positioning in their respective locality. 
  • We expect most weakness in the hospitality REITs come 3Q15, despite it being a seasonally strong quarter. We believe that Hospitality REITs with regional exposure will likely perform better as the outlook for Singapore remains weak. 
  • For industrial REITs, we believe that performance will remain fairly flattish, with market rents expected to further moderate and rental reversionary gap to tighten further as passing rents catch up to market levels. 
  • Office REITs will continue to face increasing headwinds of weak demand in CBD, while occupancy risks might emerge if more firms (especially the telecoms, media sector) look to re-locate to sub-urban locations and business parks to save costs. While we see value in the office REITs, near term stock performance is likely to be range bound given that rents remain on a downward trend. 

Prefer REITs with sustainable growth to withstand medium term uncertainties. Picks MAGIC, FCT and CRCT. 

  • Notwithstanding shorter term macro tailwinds, we advocate investors to remain “positioned for hikes”, focusing on S-REITs with an ability to grow dividends on a sustainable basis. 
  • Stocks we like are MAGIC and FCT. We also believe that CRCT, trading at 7.9% forward yield, is attractive.




Derek Tan DBS Vickers | Mervin Song DBS Vickers | Rachael TAN DBS Vickers | http://www.dbsvickers.com/ 2015-10-07
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.12 Same 1.12
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