As investors continue to adopt a risk-off mode, investments have been flowing into defensive stocks. In particular, valuation of REITs has been jacked up due to investors’ interest in increasing exposure to defensive stocks. Investors who were late to the party have been finding it difficult to find REITs that are at the right price. For these investors, there are three REITs that DBS thinks will slowly emerge as value plays as we approach 2019.
Investors Takeaway: 3 Value-Play REITs That Should Be On Your Watchlist
- Soilbuild Business Space REIT
As expected, Soilbuild Business Space REIT’s earnings results remained weak in 3Q18. Its DPU continues to be under pressure, just like in the past few years. However, DBS is forecasting a turnaround as contributions from its Australian assets kick in.
As industrial rents continue to bottom out, Soilbuild Business Space REIT’s timely expansion into Australia and positive contributions from crown jewel Solaris will help anchor earnings resilience and yields. Moving forward, DBS foresees this to revive investor interest as DPU outlook reverts to positive trajectory after a three-year hiatus. Soilbuild Business Space REIT is expected to be on the lookout for more acquisition opportunities in Australia.
With dividend yield hitting more than 9 percent, DBS highlights that value has emerged at Soilbuild Business Space REIT’s current valuation. As such, DBS thinks that it is worth relooking at Soilbuild Business Space REIT.
BUY, TP $0.65; Current share price $0.58
- Frasers Commercial Trust
Frasers Commercial Trust is currently trading below its book value and recent placement price of $1.48. Over the last 18 months, its share price has lagged other office REITs like CapitaCom Trust and Keppel REIT. DBS attributes this to concerns over the impact of HP vacating Alexandra Technopark (ATP) and lack of growth.
While most brokerage houses have given Frasers Commercial Trust a ‘HOLD’ call due to concerns that Frasers Commercial Trust is no longer growing, DBS thinks otherwise. DBS believes that Frasers Commercial Trust’s growth path is back on track with its recent acquisition of the Farnborough Business Park.
Compared to its original core markets of Singapore and Australia, the UK market is offering much more attractive yields. With Frasers (sponsor) expanding into the UK business park space, Frasers Commercial Trust has increased its visible acquisition pipeline to over $4B. With resumption of growth and demonstrated ability to sell assets above book, Frasers Commercial Trust deserves to be trading at a premium to its share price, according to DBS.
BUY, TP $1.70; Current share price $1.37
- Mapletree Commercial Trust
Mapletree Commercial Trust is one of the retail REITs with the best-in-class retail/business park assets. But despite that, the market continues to undervalue Mapletree Commercial Trust at a PB of 1.1x.
Most of Mapletree Commercial Trust’s critics highlight that the threat from e-commerce will affect earnings at its key asset VivoCity. But DBS believes that this ignores the capability of management to undertake asset enhancement initiatives (AEIs) to partially future-proof the mall against competition from other malls and the online space.
Recently completed, upcoming refurbishments and the bonus 24,000 sqft of GFA Mapletree Commercial Trust has obtained by adding a library to Vivocity will add 10-29 percent in ROI. This will underpin the two percent DPU CAGR over the coming two years. As Mapletree Commercial Trust demonstrates its ability to deliver consistent DPU growth and showcase the quality of its assets, DBS foresees the market to reward Mapletree Commercial Trust with a PB of 1.2x.
BUY, TP $1.80; Current share price $1.650
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