Singapore Reits are back in vogue with more analysts upgrading or maintaining an overweight call on the sector in recent weeks. One key factor was the US Federal Reserve's surprise policy shift to slow the pace of interest rate hikes this year.
S-Reits, typically seen as a more defensive play, have outperformed the Straits Times Index so far this year. The FTSE ST Reit Index is up nearly 5 per cent, versus the STI's 0.07 per cent loss so far this year.
The STI last week briefly erased its losses for the year after the Fed flagged just two rate hikes this year from four in December, citing the potential impact of weaker global growth on the US economy.
Ms Lee Wen Ching, Singapore equities analyst at UBS Wealth management, said Reits provide a defensive shelter amid market volatility and low bond yields. "The sector could continue to do well against a backdrop of low bond yields, heightened risk aversion amid pronounced market volatility, and the risk of further dividend cuts among traditional high-yield stocks."
RHB Research upgraded its S-Reits call to overweight from underweight, saying the sector is the most compelling as it has the "widest yield spreads (4.6 per cent) among its regional peers (average: 2.44 per cent)".
UOB Kay Hian also kept an overweight call, saying slower than expected rate hikes should bode well for the property and Reit sectors.
Even if there is an unexpected rate hike, UOB Kay Hian said the sector is "well-prepared" for it. "We reckon that steps taken by Reit managers... to fix 60 to 100 per cent of interest costs should delay the impact of potential rate hikes over the next 12 to 18 months."
OCBC Investment Research, which kept a neutral call, said the various Reit sub-sectors have shown resilient fourth-quarter results, except for hospitality Reits. Overall distribution per unit (DPU) growth came in at 1.9 per cent.
Ascott Residence Trust, CDL Hospitality Trusts, Far East Hospitality Trust and OUE Hospitality Trust reported a year-on-year decline in DPU ranging from 3.8 per cent to 8.6 per cent, OCBC said. "The drag came from the tightening of budgets by corporates, relatively strong Singdollar vis-a-vis regional currencies and more intense competitive pressures underpinned by a higher hotel room supply," it said.
Despite subdued manufacturing data here, industrial Reits Mapletree Logistics Trust and Soilbuild Business Space Reit achieved stable results while Ascendas Reit and Mapletree Industrial Trust saw healthy DPU rises, it said.
Retail Reits had the best showing, delivering year-on-year DPU growth of 4.4 per cent. OCBC said CapitaLand Mall Trust (CMT) saw the strongest share price gain so far this year, up nearly 13 per cent, followed by Mapletree Commercial Trust (MCT), up 8.5 per cent.
For the fourth quarter, CMT posted DPU of 2.88 cents, a rise of 0.7 per cent over the 2.86 cents a year ago. MCT posted a DPU of 2.08 cents for the third quarter ended Dec 31, 2015.