“For hospitality, we are encouraged that some of the Singapore hotels and serviced residences have started to turn in positive RevPAR/RevPAU growth in 4QCY17. Retail landlords will have to continue to reposition their malls amid structural challenges, but the improvement in consumer confidence and Budget measures (one-off SG Bonus of $100-300 and GST hike implementation only from 2021 at the earliest) augurs well in the near-term,” comments Wong on the two S-REIT sub-sectors.
Looking ahead, Wong foresees a more operationally buoyant outlook with the expected easing of supply pressures this year for most sub-sectors, and retains the positive view that office rentals in particular are likely to see the strongest recovery in rents in 2018.
Amid his cautious view on S-REITs, the analyst has narrowed his top pick recommendations to three names to accumulate following the recent market pullback.
These are namely Frasers Logistics & Industrial Trust (FLT), Frasers Centrepoint Trust (FCT) and Mapletree Logistics Trust (MLT) – all of which have been rated “buy” at fair value estimates of $1.25, $2.49 and $1.48, respectively.
“The FTSE ST REIT Index (FSTREI) has declined 5.9% YTD, versus the STI’s 1.1% increase. Despite the correction, we do not find sector valuations attractive. The FSTREI is currently trading at a forward yield spread of 369 bps against the Singapore Government 10-year bond yield. This comes in at ~1.2 standard deviations below the 5-year average of 412 bps,” he notes.
As at 12.27pm, units of FLT, FCT and MLT are trading at $1.08, $2.17 and $1.19 respectively.
