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OCBC Investment Research maintained a neutral stance on the Singapore REITs (S-REITs) sector, with six stocks downgraded during the end of the Q4CY2017 earnings season.
It revealed that the Q4CY2017 earnings season offered little surprises since all 24 S-REITs under its coverage delivered results that are within their expectations.
“On average, DPU growth declined marginally by 1.4 percent on a year-on-year basis, compared to -0.2 percent recorded in 3QCY17,” it said.
“From a sub-sector perspective, the hospitality sector fared the worst (-6.8 percent year-on-year), while there was no clear strong-performing sub-sector, with retail delivering slightly positive growth of 0.4 percent.”
With this, OCBC predicts a more optimistic operational outlook for the S-REITs sector, in view of the continued momentum within the macroeconomic landscape as well as the expected easing of supply pressures for most sub-sectors this year.
Industrial rents are expected to bottom-out in early H2 2018 versus its earlier expectations of it happening by the end of the year, while office rentals are expected to witness the strongest recovery in rents this year.
“For hospitality, we are encouraged that some of the Singapore hotels and serviced residences have started to turn in positive RevPAR/RevPAU growth in Q4CY17,” said OCBC.
Retail landlords, on the other hand, will have to “continue to reposition their malls amid structural challenges, but the improvement in consumer confidence and Budget measures (one-off SG Bonus of S$100-S$300 and GST hike implementation only from 2021 at the earliest) augurs well in the near-term”.
Amid its cautious view on S-REITs, OCBC narrowed its top pick recommendations to three names to accumulate following the market pullback – Frasers Centrepoint Trust (FCT), Mapletree Logistics Trust (MLT) and Frasers Logistics & Industrial Trust (FLT).
All three have been rated “buy” with fair value estimates of S$2.49, S$1.48 and S$1.25, respectively.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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