With FY2025 yields of 6.7% or trading between -1 to -2 standard deviations (s.d.), this implies that earnings risks are "substantially priced in".
"Even at an assumed further 15% cut in distribution rates, we see opportunities to pick up names within overseas retail, industrial, and office that face near-term earnings risk that would be likely priced in," they add.
With US President Donald Trump's on-off tariffs bringing about great volatility in share prices and confusion in the markets, the analysts see a "rewarding" re-entry point in S-REITs.
"We remain constructive in adding S-REITs with current valuations at 0.82 times P/B and FY2025 yield of 6.7% (yield spread of 4.0% against the SG 10-year yield) that are close to the lows seen in periods of economic stresses from 2011 to present," say the analysts.
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"In fact, observations over the past 15 years indicate a greater occurrence of positive returns when investors re-enter at current valuations, which confirms our positive stance on the sector," they add.
In this scenario, the analysts still stand by their preferred sectors, which are retail, industrial, offices and hotels in that order. This preference still holds true, even in the case of an economic slowdown, they write.
While Singapore's trade-dependent economy could see business confidence being impacted by the US tariffs and US-China trade war, the analysts still see S-REITs being "resilient" based on the sector's past recapitalisation and divestment activities.
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Furthermore, after stress testing the sector's balance sheets with assumed valuation declines of between -5% to -15%, the analysts found that S-REITs remain "well positioned to withstand further shocks to capital values".
"Even if property valuations decline by an additional 15%, most REITs (ex-US office REITs) would remain within the Monetary Authority of Singapore's (MAS) gearing limits, particularly with the gearing threshold having been raised to 50%," they note.
Beyond their alpha picks, the analysts prefer CapitaLand Integrated Commercial Trust(CICT), Keppel REIT, Mapletree Logistics Trust(MLT), Mapletree Industrial Trust(MINT) and Parkway Life REIT.
The analysts have "buy" calls for all the nine REITs mentioned here with target prices of $2.30 for CICT, $1.10 for Keppel REIT, $1.75 for MLT, $2.60 for MINT and $4.75 for Parkway Life REIT. The analysts' target prices for MPACT, Sasseur REIT, FEHT and FLCT are $1.80, 90 cents, 75 cents and $1.10 respectively.
