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Singapore real estate investment trusts (S-REITs) saw renewed interest from investors, who view these assets as safe havens amidst the fresh curbs on private housing and the brewing trade war between two economic superpowers, according to DBS Vickers.
“There has been good interest in S-REITs over the last couple of months. With the sector bouncing 4.6 percent from the lows in June as property funds switched from developers due to the additional property cooling measures in Singapore and generalist funds seeking yield given the uncertain macro backdrop arising from the trade war between China and the US,” said DBS Vickers analysts Mervin Song and Derek Tan.
“With the expected improvement in fundamentals given easing supply pressures and investors refocusing on yield instruments, we believe S-REITs are poised to sustain their rally to bring yield spreads towards the circa 3.0 percent level.”
In particular, S-REITs with office properties are currently the most attractive to most investors as monthly rent of grade A office space here rose 4.0 percent quarter-on-quarter to $10.10 psf in Q2 2018. Office REITs are also fast approaching a period of positive rental revisions. DBS Vickers’ top pick for this segment is CapitaLand Commercial Trust.
The next top subsector for the research house is industrial as its rents appear to be bottoming and there is greater likelihood of a recovery happening in 2019. DBS Vickers’ top choices for this category are Ascendas REIT and Mapletree Logistics Trust.
Previously, hospitality REITs was its second top investment choice, but the earnings of their luxury hotels was a let-down as corporate visitors shunned the city-state during the US-North Korea Summit and such upscale hotels struggled to maximise yields as clients made late bookings. Nevertheless, it is upbeat on CDL Hospitality Trusts due to its good valuation.
As for S-REITs with retail assets, while negative rental reversions of such properties have eased, DBS Vickers think the trading prices of such trusts are “unlikely to break out” from their present range due to the growing popularity of e-commerce.
Nonetheless, it is bullish on Frasers Centrepoint Trust due to the completion of renovations at Northpoint City. It is also optimistic on Suntec REIT due to the recovery of Suntec Mall and Singapore’s rebounding office market.
Eugenia Rosaline Shlaen edited this story. To contact her about this or other stories, email eugenia@propertyguru.com.sg
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