Singapore, RHB advises S-REIT investors stay selective despite threats of Fed rate hikes as the sector still offers the highest yields as well as yield spreads among its global peers.
While growth stocks have gained favour since early 2017 on the back of Trump’s favourable policy stance, risks remains from rising protectionism, financial weakness from rising rates and rapid growth of private sector credit.
We believe this uncertain environment would help to sustain the interest in S-REITs for 1H17, says analyst Vijay Natarajan in a Friday report. Currently, S-REITs are trading at a 440bps premium to 10-year treasury vs 10-year average spread of 410bps, not including the GFC period.
Their current average net gearing stands at 35%, well below the maximum limit of 45%. RHB’s calculations also show REITs are well prepared for a rate hike, with about 79% of the total debt profile being in fixed rates or hedged.
Meanwhile, Singapore has been growing in stature as a REIT hub amid an overall lull in the IPO market. In 2016, three diverse REITs were listed, raising $1.27 billion or 68% of total IPO listings.
S-REITs also had a positive start in 2017, with the listing of Basin REIT in January. Media reports have highlighted at least three more in the pipeline including Cromwell REIT, Amare/Greenland REIT and RTO of Saizen REIT.
Among the sub-sectors, Natarajan favours exposure to the business park space due to favourable demand-supply dynamics. The supply glut facing the office and hospitality segments is expected to slowly fade in 2018, resulting in better market conditions.
Our Top Picks are Ascendas REIT (TP: $2.65), CapitaLand Commercial Trust ($1.68) and Manulife US REIT (US$0.96)
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