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

Singapore REITs - DBS Research 2016-02-04: Calm amid rough seas 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
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.11 Same 1.11
BUY Maintain BUY 1.40 Same 1.40
BUY Maintain BUY 2.52 Same 2.52
BUY Maintain BUY 2.04 Same 2.04
BUY Maintain BUY 1.69 Same 1.69


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