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OCBC 'cautious' on S-REITs' share price rally

Felicia Tan
Felicia Tan • 2 min read
OCBC 'cautious' on S-REITs' share price rally
Share prices for the Singapore REITs (S-REITs) sector have rallied recently following further measures to support landlords, including extending timelines for S-REITs to distribute at least 90% of their taxable income for FY20 and FY21.
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SINGAPORE (June 8): Share prices for the Singapore REITs (S-REITs) sector have rallied recently following further measures to support landlords, including extending timelines for S-REITs to distribute at least 90% of their taxable income for FY20 and FY21.

Following the Fortitude Budget speech on May 26, the Ministry of Law announced on June 3 that a Covid-19 (Temporary Measures) (Amendment) Bill would be introduced in Parliament. The amendment includes a new rental relief framework for eligible small and medium-sized enterprises (SMEs), and to improve relief available to business who are unable to fulfil their contractual obligations due to Covid-19.

Authorities have also introduced a further round of measures to help SMEs, and to extend timelines for Singapore REITs (S-REITs) to distribute their taxable income for FY20 and FY21.

However, OCBC Investment Research is “cautious” on valuation grounds.

“The FSTREI is now trading at a forward distribution yield spread of 457 bps against the Singapore government 10-year bond yield. This is in-line with its historical 12-year average, but has compressed from the +1.6 standard deviation (s.d.) level seen during late Mar this year. Forward PB ratio of 1.06x is 0.6 s.d. above its 12-year mean of 0.96x,” OCBC says in its Friday (June 5) report.

Furthermore, OCBC believes there are downside risks to the recovery ahead, as Singapore reopens from the circuit breaker measures. These include a potential increase in community infections, and a slower meaningful rebound in shopper traffic, consumption spending, and factory output.

The recent share price rally also includes REITs in the retail and hospitality sectors, which are facing strong near-term headwinds due to the impact of the Covid-19 pandemic. The rebound also includes small-to-mid-cap REITs, which can be more vulnerable in a prolonged downturn.

The brokerage is maintaining “buy” calls on Ascendas REIT with a target price of $3.52, Mapletree Industrial Trust (MINT) with a target price of $2.84, and Mapletree North Asia Commercial Trust (MNACT) with a target price of $1.13.

As at 10.04am, units in Ascendas REIT are changing hands 0.3% up at $3.27; units in Mapletree Industrial Trust 1.8% lower at $2.77; and Mapletree North Asia Commercial Trust 2% up at $1.

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