Why Singapore REITs are still worth buying

SINGAPORE (Aug 23): OCBC Investment Research has maintained its “overweight” rating on the Singapore REIT industry, following the conclusion of the 2Q2016 results season.

According to analysts Andy Wong and Eli Lee, 21 of the 23 REITs under OCBC's coverage met expectations.

The only exceptions were OUE Hospitality Trust and Ascott Residence Trust, which posted core results that were below forecasts.

Overall growth in distributions per unit (DPU) for the Singapore REIT industry remained fairly stable, declining 0.1% during the quarter, compared with 2Q2015.

The best performers were OUE Commercial Trust (OUE CT), Lippo Malls Indonesia Retail Trust and Mapletree Greater China Commercial Trust, which reported DPU growth of 34.7%, 16.4% and 9.1% y-o-y respectively.

For OUE CT, the huge jump in DPU arose from the dilution, following a rights issue in 2Q2015, which completed ahead of the acquisition of One Raffles Place.

OCBC now expects DPU growth for S REITs to remain low in the near term, as operational challenges from macroeconomic uncertainties and supply concerns loom over the sector.

Wong and Lee noted that income contribution would be negatively impacted, as many REIT managers are carrying out asset enhancement initiatives and redevelopment works during this time, to reposition their assets when the market recovers.

That said, the pair believe there will a “prolonged period of accommodative interest rates”, following the release of the minutes from the FOMC July meeting. They have also forecast a 51% possibility of at least one rate hike by year end, based on the fed funds futures rate, which supports their overweight rating on the sector.

OCBC’s top picks from the sector include Frasers Centrepoint Trust (trading at S$2.16), Keppel DC REIT (S$1.20) and Ascendas REIT (S$2.45). They pair are also positive on SPH REIT (96.5 Singaporean cents) and Mapletree Greater China Commercial Trust (S$1.10). —

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