SINGAPORE (Feb 11): DBS Group Research is keeping its “overweight” rating on Singapore REITs following more dovish comments from the US Federal Reserve.

In a statement on Jan 30, the US central bank said it “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate”.

Notably, the Fed also discarded its promise of “further gradual increases” in interest rates.

Market observers say this could point to an end to its tightening cycle amid signs of slowing global growth.

“With investors now expecting a more dovish Fed compared to earlier expectations of [two to four] rate hikes, the Singapore REITs [FTSE ST Real Estate Investment Trusts Index] share prices have rebounded strongly, rising close to 7.3% (total returns of 8.0%) year-to-date,” lead analyst Derek Tan says in a report on Monday.

Tan notes that this is higher than the 4.9% rise in the Straits Times Index (STI) so far this year.

“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,” he adds.

However, DBS warns that investors should remain watchful over the slowing global growth environment.

“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’,” Tan says.

As such, DBS is keeping CapitaLand Mall Trust (CMT), Mapletree Logistics Trust (MLT), Mapletree Commercial Trust (MCT), Mapletree North Asia Commercial Trust (MAGIC), and Frasers Logistics & Industrial Trust (FLT) among its top picks for the sector.

The brokerage has “buy” calls on all five, with target prices at $2.44, $1.50, $2.00, $1.45, and $1.20, respectively.

As at 3.48pm, units in CMT are trading flat at $2.40, units in MLT are trading 1 cent higher at $1.40, units in MCT are trading 1 cent lower at $1.81, units in MAGIC are trading flat at $1.26, and units in FLT are trading 2 cents higher at $1.10.

At the same time, DBS is adding Ascendas REIT (A-REIT) to its top picks.

“Ascendas REIT… surprised during the recent reporting season as occupancy rates and rental reversions came in above market expectations,” says Tan.

A-REIT reported a 3Q19 distribution per unit (DPU) of 3.998 cents, growing 0.7% from 3.97 cents a year ago after taking into account an enlarged number of units in issue.

The growth in DPU was mainly attributed to contributions from both newly-acquired and redeveloped properties.

Gross revenue for the quarter grew 4.2% to $226.4 million, while net property income (NPI) grew 6.6% on-year to $168 million.

DBS has a “buy” call on A-REIT with a target price of $2.95.

As at 3.48pm, units in A-REIT are trading flat at $2.75.