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Current S-REIT levels 'opportunity to re-enter' as 'patient' FED conducive for sector to re-rate: DBS

Felicia Tan
Felicia Tan • 2 min read
Current S-REIT levels 'opportunity to re-enter' as 'patient' FED conducive for sector to re-rate: DBS
The analysts at DBS have highlighted preferred names including CDLHT, MINT, Suntec REIT, Lendlease REIT and ALOG.
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The current share price levels for the Singapore REIT (S-REIT) sector presents an “opportunity” for investors to re-enter, say DBS Group Research analysts Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong on Aug 30.

The estimate comes after US Federal Reserve chairman Jeremy Powell’s broad messaging that the US central bank will “stay the course” as opposed to being early in its expected taper programme in the 2HFY2021.

On this, the team sees a “more patient” FED to be conducive for S-REITs to re-rate, with a rate hike some time away.

“Taking the cue from the last rate hike normalisation in 2HFY2013-2018, a 1.5 years difference between “taper signal” to the first rate hike will imply the first hike will likely be in 2023,” they write.

As such, the analysts say they “see sufficient buffer and S-REITs to find its ground post pandemic before addressing interest rate risks and thus recommend investors to take the recent share price weakness to add”.

To the team, FY2021 and FY2022 yields for S-REITs are attractive at 5.5% and 6.0% respectively. The figures imply that yield spreads against the SG 10-year bond are close to -1 standard deviation (s.d.) at 4.0% to 4.5%.

Furthermore, the potential inclusion of some S-REITs in the FTSE EPRA Nareit Developed Asia Index has brought about more visibility for the sector. This is due to the wider representation of Singapore in major property indices, note the analysts.

As it is, selected mid-cap S-REITs have already attracted incremental inflows due to their possible inclusion into the index.

From now, the analysts say they expect the overall sector to “build its base from now on”.

“We remain optimistic that the S-REITs can continue to ride on the gradual re-opening of the Singapore economy and maintain our view that the robust earnings growth projections in 2HFY2021-2022 to drive a re-rating for the S-REITs,” they write.

“We prefer selected retail and office S-REITs (Mapletree Commercial Trust, Suntec REIT, Frasers Centrepoint Trust, Lendlease Global Commercial REIT) and industrial S-REITs for its robust growth trajectories (Mapletree Logistics Trust, Mapletree Industrial Trust, Frasers Logistics & Commercial Trust, ARA LOGOS Logistics Trust and ESR-REIT). Amongst hotels, we prefer global diversified names like CDL Hospitality Trusts.

The STI closed 1 point higher or 0.03% up at 3,088.84 on Sept 2.

See: 'Buy' A-REIT and FCT on gathering pace of economic recovery: analysts

Photo: Bloomberg

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