Singapore REITs - DBS Research 2016-02-04: Calm amid rough seas

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ASCENDAS REAL ESTATE INV TRUST A17U.SI  MAPLETREE GREATER CHINACOMM TR RW0U.SI  MAPLETREE COMMERCIAL TRUST N2IU.SI  FRASERS CENTREPOINT TRUST J69U.SI  CAPITALAND RETAIL CHINA TRUST AU8U.SI 

Singapore REITs - Calm amid rough seas 

• Continues to show resilience in the midst of volatility 
• Attractive valuations are opportunities to lock in yields 
• Picks : A-REIT, FCT, MCT, MAGIC and CRCT 

Heightened demand for yields in the midst of increased volatility. 

• With heightened economic uncertainty from low oil prices and slowing growth in China, S-REITs once again shine in the midst of current market volatility as “safe havens”. 
• The S-REITs have outperformed the STI and developers YTD, falling by a smaller c.3% compared to the 11% drop in the overall market. 
• Looking ahead, we believe that near term performance will be firm and largely macro driven, with increasing expectations of a delay in further FED hikes to be positive for share prices in the near term (DBS economists currently assume above-consensus 4 hikes over 2016). 

Attractive valuations to lock in some yields. 

• The S-REIT sector trades at 0.9x P/Bk, and offers investors a yield of 7.1%. This implies a yield spread of 4.9% against the 10- year government bond of 2.2%. 
• We believe current spreads to be attractive, at more than 1% than the sector’s 10-year and 5-year trading averages of 3.8% and 4.1% respectively. 
• While higher? interest rates are a potential risk in the medium term, we remain comforted by S-REITS’ conservative capital strategies (average gearing remains manageable at 34%; fixed-rate hedge profiles are high at 80%), which will mitigate the impact of higher refinancing costs when it occurs. 

Comfortable levels to add. 

• We believe current valuations are attractive re-entry levels and believe that large caps are likely to benefit as investors turn yield hungry in a tepid growth environment. 
• Amongst S-REITs, our preferences are those with the opportunity to surprise on the upside through acquisitions or portfolio-specific catalysts. Top picks are A-REIT, MAGIC, MCT, FCT, and CRCT.

Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-02-04

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