Singapore REITs and developers to ‘buy’ on improving economic fundamentals

SINGAPORE (March 17): As global economic fundamentals begin to improve, DBS Vickers Securities is expecting prices to be supported for Singapore REITs (S-REITs) in the near term given earlier fears that the Fed would be more hawkish.

Noting that the Fed guidance in keeping a gradual pace of two more hikes this year is in line with its expectations, DBS sees better gross domestic product (GDP) growth prospects for Singapore.

Hence, the research house recommends investors to position themselves in the more cyclical sectors in the office and industrial REITs, especially business parks and hi-tech industrials. Their top picks within these criteria are namely Ascendas REIT (A-REIT), Keppel REIT (K-REIT), Mapletree Commercial Trust (MCT), Frasers Logistics & Industrial Trust (FLT) and Croesus Retail Trust (CRT) at target prices of S$2.65 (RM8.40), S$1.23, S$1.62, S$1.10 and 99 Singapore cents respectively.

Additionally, the analysts see a “potential mega consolidation of almost all mid-cap industrial REITs” with the emergence of e-Shang Redwood, a new significant investor which is backed by Warburg Pincus.

“e-Shang recently acquired an 80% stake in the manager of Cambridge REIT, a 12% stake in the REIT and a 5% stake in Sabana REIT. In addition, Warburg Pincus has an interest in the manager of Cache Logistics Trust and is reportedly bidding for Global Logistics Properties,” recalls the research team in a report on Friday.

“The catalyst to a merger would emerge if e-Shang and Warburg Pincus partner Mr Tong Jinquan (a significant shareholder of Cambridge, Sabana and two other mid-cap industrial REITs) to consolidate their stakes in all the industrial REITs they own, which would be the largest consolidation of almost all the mid-cap industrial REITs,” add the analysts.  

Despite the recent rally in developers’ share prices, DBS believes there is still upside to this sector with improving transaction volumes, and advocate investors to remain vested and buy on dips, if any.

In the research team’s view, the recent easing of the seller stamp duty (SSD) in Singapore means continued sector-wide re-rating opportunities will follow.

As such, DBS has identified developers Frasers Centrepoint Ltd (FCL) and UOL Group as their top “buy” picks which offer good value, and have been given target prices of S$2 and S$7.64 respectively. —  

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