S-Reits still a choice pick, say analysts

Westgate mall is part of CapitaLand Mall Trust's portfolio. Retail Reits are tipped by analysts to be a good bet, and those with suburban exposure and assets with a bit more scale in terms of size and offerings will do better, said Mr Derek Tan of DB
Westgate mall is part of CapitaLand Mall Trust's portfolio. Retail Reits are tipped by analysts to be a good bet, and those with suburban exposure and assets with a bit more scale in terms of size and offerings will do better, said Mr Derek Tan of DBS Vickers Securities.ST FILE PHOTO

They outperformed STI this year, with industrial and retail sectors shining more

Singapore-listed real estate investment trusts (S-Reits) continue to shine as safe havens amid turbulent markets, although some segments might see more challenges, say analysts.

Reits have outperformed the Straits Times Index (STI) this year, falling by about 2 per cent compared with the 11 per cent plunge in the STI. DBS Vickers Securities said S-Reits offer attractive valuations, trading at about 0.9 times price to book, and offer investors a yield of 7.1 per cent.

Analysts told The Straits Times that the financial performance of S-Reits has generally met expectations. OCBC Investment Research said 20 of the 22 S-Reits it covers have reported results for the three months to Dec 31, and all had performed within its expectations, "with overall distribution per unit (DPU) growth coming in at 2 per cent", compared with a year ago.

Some industrial Reits were particularly resilient.

"Mapletree Logistics Trust and Soilbuild Business Space Reit turned in stable performance, while Ascendas Reit and Mapletree Industrial Trust registered decent growth", said OCBC Investment Research investment analyst Andy Wong.

Mr Ivan Looi, an analyst at RHB Research Institute Singapore, believes those with business parks exposure are "more appealing".

"Rentals at business parks will likely remain resilient because the supply after 2016 should be tight. Companies looking to cut cost will also see business parks as a cheaper alternative," Mr Looi noted.

Rentals for business parks in the city fringe were about $5.40 per sq ft per month on average, compared with $7.70 psf at Grade B offices island wide, he added.

Retail Reits are another sub-sector tipped to be a good bet.

"Within retail, Reits with suburban exposure, and assets with a bit more scale in terms of size and offerings, will do better," said DBS Vickers Securities analyst Derek Tan. He favours Frasers Centrepoint Trust and CapitaLand Mall Trust.

Mr Looi added: "We like retail, partly because the tourist numbers seem to be recovering in recent months. That could potentially be a catalyst in the next few quarters."

However, sectors that are "more intertwined with the global economic outlook" - such as office space and hotels - could face difficulties, saidMr Tan.

OCBC Investment Research said hospitality Reits under its coverage had a challenging quarter. "Ascott Residence Trust, CDL Hospitality Trusts and OUE Hospitality Trust all reported DPU which declined year-on-year, ranging from 3.8 per cent to 4.5 per cent," said Mr Wong.

Analysts cited the large supply of new hotels and office space as well as weak and uncertain demand as the key factors weighing on the two sub-sectors.

Mapletree Greater China Commercial Trust was one Reit that surprised analysts with bumper numbers, posting an 11.6 per cent growth in DPU, said Mr Tan.

Overall, analysts expect DPU growth to remain relatively subdued in the near term while the increasing expectations of a delay in further rate hikes in the United States would be positive for share prices.

A version of this article appeared in the print edition of The Straits Times on February 12, 2016, with the headline 'S-Reits still a choice pick, say analysts'. Print Edition | Subscribe