For a period of time, investors have been avoiding REITs for the fear of the impact of the Fed’s interest rate hike. Now, it seems that the time has come for REITs to feature more prominently in investors’ portfolio. In this article, we will focus on three quality REIT gems that DBS thinks every investor in the Singapore market need to have in your portfolio.
Investors Takeaway: 3 Quality REIT Gems For Income Seekers
- Ascendas REIT
According to DBS, A-REIT is one of the must-have REITs in Singapore. Despite its premium pricing, DBS thinks that Ascendas REIT (A-REIT) is worth accumulating as it offers a steady growth of around one percent in distribution per unit (DPU). The steady growth in DPU is supported by A-REIT’s solid portfolio and the manager’s ability to acquire creatively.
Given A-REIT’s leading operational scale in Singapore and its focus on the business park space, DBS notes that A-REIT is in a strong position to capture the changing needs of doing business in the “New Economy”. There are ample opportunities for the manager to deliver earnings surprises including the REIT’s ability to renew leases of around 12 percent of vacant space in its portfolio, and new acquisitions.
A-REIT is potentially looking into diversifying to new markets in Europe and the USA. A-REIT believes that these are developed markets that offer similar risk profiles as its current stronghold in Singapore. The manager’s disciplined investment approach will help it to acquire “income producing” assets rather than speculative builds.
BUY, TP $3.00; Current share price $2.58
- CapitaLand Commercial Trust
With a multi-year upturn in office rents in Singapore acting as a tailwind, DBS recommends investing in the undervalued CapitaLand Commerical Trust (CapitaCom Trust). DBS opines that the correction in share price of CapitaCom Trust in the last few months has led to emerging value in CapitaCom Trust. New supply of office buildings over the coming three years is going to be limited. This will continue to push office rents in Singapore higher.
Apart from the economic tailwind, CapitaCom Trust is also fundamentally undervalued. DBS opines that most of CapitaCom Trust’s properties are valued below physical market transactions. On top of that, DBS thinks that some of CapitaCom Trust’s properties deserve to be trading at a premium. Buildings such as Capital Tower and 999-year leasehold HSBC Building are priced at a discount to recent transactions of comparable buildings.
BUY, TP $2.12; Current share price $1.75
- Mapletree Industrial Trust
DBS labels Mapletree Industrial Trust as a gem in the REIT space for its valued trait of delivering steady earnings profiles. However, DBS believes that Mapletree Industrial Trust’s resilience has yet to be reflected in its current share price.
Another trait that DBS likes about Mapletree Industrial Trust is its diversity. While investors have long attributed the trust’s premium valuations to its Singapore “pure play” status, the view is slowly changing. The market is showing its appreciation of Mapletree Industrial Trust’s diversification strategy to re-accelerates the REIT’s growth profile. Mapletree Industrial Trust’s current conservative gearing of 33 percent will also empower it to deliver more inorganic growth surprises.
Mapletree Industrial Trust finished FY18 on a strong note and managed to set the stage for a strong FY19. Moving forward, DBS foresees Mapletree Industrial Trust to deliver a steady growth profile on the back of well-timed contribution from its development projects over FY18-19.
BUY, TP $2.22; Current share price $1.96
Get Defensive With REITs But Be Selective