DBS: Time to buy select Singapore office and hotel REITs

Singapore two-dollar bills

It’s time to accumulate selected Singapore office and hotel real-estate investment trusts (REITs), DBS said, adding “green shoots abound.”

“After a downturn over the past three to four years in various property submarkets, we believe we are at the cusp of a multi-year upturn
led by the office and hotel sectors,” DBS said, adding supply pressures are easing. “This should result in the market moving from an
oversupplied situation to a landlord’s market.”

It said it expected office space supply in the downtown central business district (CBD) would “fall significantly” from 2018-2021, which was set to boost rents in the medium term.

DBS also pointed to a “robust” economic outlook for the city-state, with the bank forecasting 2018 and 2019 growth at 3.0 percent and 2.7 percent. Services sectors were expected to be the main economic growth driver, and that will drive demand for office space, DBS said.

In the hospitality sector, DBS said supply was expected to moderate over the next three years after 2014-2017 saw high added supply.

DBS said it also expected the overhang on Singapore REITs from the recent spate of equity fund-raisings had likely passed. Excluding IPOs, S-REITs have raised around S$4 billion over the last five months, with most of the proceeds aimed at acquisitions, DBS noted, adding that, in combination with increased expectations for U.S. interest rate hikes, has weighed on the S-REIT index since April.

“While the timing of further fund raisings is hard to predict, we believe the majority of the large equity raisings are likely behind us. With nascent signs of a sustainable recovery in the Singapore property market boosted by an inorganic strategy, in our view, should result S-REITs in rallying with yield spreads compressing to 3.0 percent from 3.4 percent currently,” DBS said.

Yields move inversely to prices.

DBS tipped its top large-cap S-REIT picks as CapitaLand Commercial Trust, Ascendas REIT and Suntec REIT, while its mid-cap top picks were CDL Hospitality Trusts, Frasers Centrepoint Trust and Frasers Commercial Trust.

Subscribe to our mailing list

* indicates required