“We believe this uncertain environment would help to sustain the interest in S-REITs for 1H17,” says analyst Vijay Natarajan in a Friday report.
Currently, S-REITs are trading at a 440bps premium to 10-year treasury vs 10-year average spread of 410bps, not including the GFC period.
Their current average net gearing stands at 35%, well below the maximum limit of 45%.
RHB’s calculations also show REITs are well prepared for a rate hike, with about 79% of the total debt profile being in fixed rates or hedged.
Meanwhile, Singapore has been growing in stature as a REIT hub amid an overall lull in the IPO market. In 2016, three diverse REITs were listed, raising $1.27 billion or 68% of total IPO listings.
S-REITs also had a positive start in 2017, with the listing of Dasin REIT in January.
Media reports have highlighted at least three more in the pipeline including Cromwell REIT, Amare/Greenland REIT and RTO of Saizen REIT.
Among the sub-sectors, Natarajan favours exposure to the business park space due to favourable demand-supply dynamics.
The supply glut facing the office and hospitality segments is expected to slowly fade in 2018, resulting in better market conditions.
“Our Top Picks are Ascendas REIT (TP: $2.65), CapitaLand Commercial Trust ($1.68) and Manulife US REIT (US$0.96),” says Natarajan.
