MAPLETREE LOGISTICS TRUST (SGX:M44U)
FRASERS LOGISTICS & IND TRUST (SGX:BUOU)
MAPLETREE COMMERCIAL TRUST (SGX:N2IU)
MAPLETREE NORTH ASIA COMM TR (SGX:RW0U)
CAPITALAND MALL TRUST (SGX:C38U)
Singapore REITs - Riding On Macro Tailwinds
- Robust response to dovish FED an impetus to further S-REIT share price outperformance.
- Investors should remain watchful over the impact of slowing global growth.
- Prefer the more resilient subsectors of suburban retail and industrial sectors.
Robust S-REIT price response post “dovish” FED comments to extend into the immediate term.
- With investors now expecting a more dovish FED compared to earlier expectations of 2-4 rate hikes, the Singapore REITs (FSTREI Index) share prices have rebounded strongly, rising c.7.3% (total returns of 8.0%) year-to-date (YTD). This is ahead of the 4.9% rise in the Straits Times Index (STI). (See S-REITs share price performance)
- Looking ahead, with market pricing in prospects of a “pause in FED hikes” in 2019, we believe that the coast remains clear for S-REITs to deliver further outperformance.
- With DBS economist now projecting the Singapore 10-year bond yields to rise by only 25bps by end-2020 to 2.35% (vs 2.70% previously), we see prospects for further compression in the current forward yield spreads of 3.65%. Maintain overweight on the S-REITs.
Rotational interest among S-REITs to continue; investors should remain watchful over the slowing global growth environment.
- We read the expected pause in rate hikes with caution as it implies “fading tailwinds” to economic growth in the medium term which we believe investors are not pricing in for now.
- In the run-up YTD, we note that more cyclical sectors of Office REITs (+8%) and Hotel & Resort REITs (+10%) have outperformed relative to “safer” REITs in the Industrial REITs (+6%) and Retail REITs (+6%) subsectors, contrary to our expectations.
- Looking ahead, our strategy remains to stay in sectors that are more resistant to economic changes (suburban retail and industrial REITs) and see REITs in these subsectors to play “catch-up”. Our picks remain MAPLETREE LOGISTICS TRUST (SGX:M44U), FRASERS LOGISTICS & IND TRUST (SGX:BUOU), MAPLETREE COMMERCIAL TRUST (SGX:N2IU), MAPLETREE NORTH ASIA COMM TR (SGX:RW0U), CAPITALAND MALL TRUST (SGX:C38U) and now adding ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) to our picks.
- With S-REITs on average currently yielding c.6.0% (large cap at c.5.3%), we also see rotational interests into selected names or laggards which are trading at higher yields ( > 100bps) than their subsector peers. Some of these tactical plays are CAPITALAND RETAIL CHINA TRUST (SGX:AU8U), FRASERS CENTREPOINT TRUST (SGX:J69U), SUNTEC REAL ESTATE INV TRUST (SGX:T82U) and OUE COMMERCIAL REIT (SGX:TS0U).
Channel checks validate our upward DPU growth trajectory.
- Our conversations with S-REIT managers and channel checks during the recent reporting season indicate that it is a “landlords' market”. Brighter prospects are expected across most sectors, and coupled with earnings uplift from past acquisitions, should underpin DPU growth momentum.
- We sense that the managers of Office REITs appear most upbeat while Retail REITs, industrial and Hotel & Resort REITs managers are turning positive about growth prospects. This gives us confidence that our FY19F-20F c.2- 3% CAGR growth in DPU is intact with upside from acquisitions.
Derek TAN
DBS Group Research
|
Mervin SONG CFA
DBS Research
|
Carmen TAY
DBS Research
|
https://www.dbsvickers.com/
2019-02-11
SGX Stock
Analyst Report
1.500
SAME
1.500
1.200
SAME
1.200
2.000
SAME
2.000
1.450
SAME
1.450
2.440
SAME
2.440
