OCBC discusses its bullish outlook for S-REITs.
In a new report, OCBC said noted that Singapore REITs (S-REITs) had a bumper year in 2012, driven by interest from investors who were seeking safe havens and attractive yields, which will likely continue in the coming year.
"Looking into 2013, we believe S-REITs would likely retain their shine, underpinned by three key drivers. First, the sector offers the highest yield spreads among its peers in other major markets. Second, S-REITs are likely to be in favour amid the uncertain macroeconomic outlook, given their defensive low beta nature. Lastly, the outlook and financial position of S-REITs are generally positive, which should translate to firm performances going forward."
Here's more from OCBC:
Bumper year for S-REITs. S-REITs had a bumper year in 2012, driven by interest from investors who were seeking safe havens and attractive yields. Looking into 2013, we believe S-REITs are likely to retain their shine, underpinned by three key drivers. First, the sector offers the highest yield spreads among its peers in other major markets. Second, S-REITs are likely to be in favour amid the uncertain macroeconomic outlook, given defensive low-beta nature. Lastly, the outlook and financial position of S-REITs are generally positive, which should translate to firm performances going forward. We maintain OVERWEIGHT on the broader S-REIT sector.
Good organic growth by local retail REITs. Within the local retail scene, REITs are still benefitting from strong rental reversions and their past investments. Local retail REITs have also been actively involved in asset enhancement initiatives (AEIs), some of which have recently completed or are nearing completion. These efforts are likely to drive the subsector growth in 2013. We maintain OVERWEIGHT on local retail REITs and we retain Starhill Global REIT [BUY, FV: S$0.84] as our preferred pick.
Strong performance by overseas retail REITs. We also maintain OVERWEIGHT on overseas retail REITs due to their exposures to the robust retail performance in the markets which they operate in. Our top pick is Fortune REIT [BUY, FV: HK$7.28], which is trading at a substantial discount to NAV of 23%.
Office REITs still offers appealing valuations. We judge market valuations of office REITs to be still appealing; the sector is now trading at an average P/B of 0.92x, despite relatively robust balance sheets and a firm average forward yield of 5.8%. Maintain OVERWEIGHT. CapitaCommercial Trust [BUY, FV: S$1.75] continues to be our top pick in the space.
Industrial REITs to remain resilient. We continue to like industrial REITs for their high current and forward DPU yields of 7.0-7.2%. Operationally, we observe that a number of acquisitions, developments and AEIs completed over the past year have yet to unleash their full potential and are expected to boost the growth in 2013. Maintain OVERWEIGHT, with Cache Logistics Trust [BUY, FV: S$1.30] as our preferred pick for the subsector.
Downgrading hospitality REITs due to muted outlook. We believe that a muted 1H13 outlook for Singapore hospitality will weigh down on local hotel counters. We are downgrading the hospitality REITs from Overweight to NEUTRAL. Ascott Residence Trust [BUY, FV: S$1.37] is our top pick in the sector.
Healthcare REITs is the most expensive sub-sector. Healthcare REITs offer the most defensive attributes amongst the SREITs. However, we believe that the subsector positives have already been priced in, with healthcare REITs trading at a rich premium to the S-REITs space. Maintain NEUTRAL.
Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)
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