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UOBKH maintains ‘overweight’ call on S-REITs despite recent decline

Lim Hui Jie
Lim Hui Jie9/2/2022 02:39 PM GMT+08  • 3 min read
UOBKH maintains ‘overweight’ call on S-REITs despite recent decline
UOBKH's top picks are FCT, LREIT, MINT and MLT. Photo: Albert Chua/The Edge Singapore
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UOB Kay Hian analyst Jonathan Koh has maintained his “overweight” call on the overall Singapore REITs (S-REITs) sector, even as the sector declined in the two weeks from Aug 16-31.

The FTSE ST Real Estate Investment Trusts Index declined 4.3% in the past two weeks, underperforming the bench Straits Times Index (STI) that fell by a mere 1.1% in comparison.

This was due to the US Federal Reserve (US Fed) maintaining a “hawkish stance” during its Jackson Hole Economic Symposium. Fed chair Jerome Powell said that fighting inflation is the Fed’s top priority, even if some “pain” is required.

Powell also added that the central bank would continue raising interest rates and shrinking its balance sheet “for some time,” clouding the outlook for the S-REITs sector.

While Koh adds that the Russia-Ukraine war also brings more uncertainty, he is of the view that S-REITs are resilient due to their stable cash flows. “Investors are likely to turn their attention to S-REITs when economic growth and inflation start to moderate,” he says.

Among the S-REITs, Koh’s picks are Frasers Centrepoint Trust (FCT), with a target price of $2.74, Lendlease Global Commercial REIT (LREIT), with a target price of 99 cents, as well as Mapletree Industrial Trust (MINT) and Mapletree Logistics Trust (MLT), with target prices of $3.36 and $2.08 respectively.

See also: DBS positive on ST Engineering’s growth prospects despite interest rate and recession risks

For the S-REITs sector, Koh says that there were “hardly any gainers” in the two weeks from Aug 16-31, although he does highlight United Hampshire REIT, saying it is “protected by its long weighted average lease expiry (WALE) of eight years and attractive 2022 distribution yield of 9.9%.”

On the other hand, the top underperformer was Digital Core REIT, losing 14.7% in the last two weeks and 34.9% y-t-d as its planned acquisition of data centres has not materialised.

Meanwhile, US REITs, Manulife US REIT and Prime US REIT, underperformed with a decline of 11.1% and 6% respectively in the two week period. Industrial REITs weren’t so hot either, with MLT, Fraser’s Logistics & Commercial Trust, MINT and Ascendas REIT declining a respective 7.2%, 6.2%, 5.9% and 5.4%.

See also: Local telcos to enjoy more growth in 2023; Simba likely to be acquired: DBS

In the two-week period, Singapore dropped its mask mandate, with masks only being required for healthcare settings, public transport, and food handlers. “This is another step towards living with Covid-19 as an endemic,” says Koh.

On a segmental basis, Koh is “overweight” on Singapore’s hospitality, industrial, office and retail REITs sub-sector. He is, however, “market weight” on the healthcare REITs sub-sector

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