Why Singapore investors continue to hide under REITs

SINGAPORE (Sept 7): CIMB Research is keeping its “overweight” rating on Singapore’s property segment given that investors are still seeking shelter in yield.

In a Tuesday report, analysts Lock Mun Yee and Yeo Zhi Bin observe how retail REITs seem to be a “favoured canopy”, largely because investors are largely hiding in yield — especially in liquid, large-cap REITs. 

In terms of REIT sub-sectors, CIMB ranks industrials ahead, followed by retail, office, and hospitality.

“We believe that the big-cap industrials are more resilient and diversified to cope with potential frictional vacancies. Also, we think that industrial landlords are best positioned as Singapore diversifies towards value-added businesses,” say the analysts.

“The question for REITs is whether we should continue to chase stocks that have done well, or rotate into laggards. Our view is somewhat anti-consensus as we recommend chasing growth over value,” they add.

To illustrate their point, the analysts mention how Keppel DC REIT (KDCREIT), Mapletree Commercial Trust (MCT) and Mapletree Industrial Trust (MINT) are trading at an estimated 25-30% premium over book.

Investors’ pushback comes mainly from valuations. However, in a “lower-for-longer” environment where growth is a scarcity and one where there are few compelling stories, Lock and Yeo believe that the valuation premium would continue. They explain that on a forward RNAV-basis, the valuation premiums for KDCREIT and MINT could gap down to about 20%, when the assets are re-valued.

“Investors concurred that REITs are overly-crowded,” comment Lock and Yeo on their marketing efforts for Singapore property and REITs to a host of investors, which took place over the last two weeks.  Although the analysts say investors are looking for a reason to switch to developers, they think a lack of near-term catalysts is holding them back.

They have also highlighted UOL Group as their top developer pick, as they expect the Singapore-listed property developer to outperform in the next six months.

“We view UOL as a laggard, with attractive discounts to RNAV. It has high recurring income from rentals and hotel operations. Residential projects such as Principal Garden enjoy continued sales thus extending development income visibility,” they explain.  

CIMB’s top picks for REITs are KDCREIT, MCT and MINT.

As at 11.25am, shares of UOL are trading 0.52% lower at S$5.80. Units of KDCREIT and MINT are trading 2.08% and 0.57% higher at S$1.23 and S$1.77 respectively, while MCT is down 0.31% at S$1.60. —

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