DBS: Weakness in Singapore REITs offers buying opportunity

Singapore five-dollar note Photo by Leslie Shaffer

The selloff in Singapore REITs, or S-REITs, is different this time and offers a buying opportunity, DBS said in a report on Tuesday.

While the S-REIT index fell around 7 percent over the past week amid a spike in the 10-year bond and inflation fears, the selloff is largely done, DBS said.

It added that this selloff was also different from the sharp selloff in 2013, when the taper tantrum amid market expectations the U.S. Federal Reserve would begin to exit its quantitative easing policy. DBS noted that the expected increase in bond yields is now much lower than was expected in 2013.

Additionally, while the Singapore property outlook in 2013 was uncertain, the fundamentals now are improving, DBS said.

’Cusp of multi-year upturn’

“We believe we are at the cusp of a multi-year upturn led by the office and hotel sectors,” DBS said, pointing to a “buoyant” economic environment. “We believe once investors refocus on the improving property fundamentals, a re-rating can occur. Thus, the current weakness is a buying opportunity.”

DBS estimates the normalised yield spread, or the yield less the normalised Singapore 10-year bond yield of 2.7 percent, can compress to around 3 percent from 3.3 percent currently.

However, DBS noted that the S-REIT index may fall another 3 percent to 5 percent from current levels and that it may take three or four months to form a base. But it added that some REITs may have already hit their lows.

The bank is Overweight on the office and hospitality REITs, with its top office picks CapitaCommercial Trust, Suntec and Frasers Commercial Trust. In the hotel segment, DBS said it liked CDL Hospitality Trust and Frasers Hospitality Trust. It also advised being Overweight on Ascendas REIT and Mapletree Logistics Trust, calling them “consistent performers” which are leveraged to a cyclical upturn.

DBS was also positive on Frasers Centrepoint Trust for strong dividend per unit growth.

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