In a Tuesday report, lead analyst Derek Tan says, “Given the uncertainty brought about by the recent travel ban and likely lower growth prospects going forward, we maintain our preference for subsectors with structural growth themes in place and are less elastic to economic gyrations.”
The research house prefers industrial REITs, such as Ascendas REIT (AREIT), Mapletree Industrial Trust (MINT), Mapletree Logistics Trust (MLT) and Keppel DC REIT (KDCREIT), while it remains cautious on hospitality and selected retail S-REITs, which are more sensitive to tourist arrivals.
Selectively, DBS likes Frasers Commercial Trust (FCT) for its resilience as a pure play suburban landlord and Ascendas India Trust (AIT) for its robust inorganic growth pipeline.
Meanwhile, DBS also lies Keppel REIT (K-REIT) for its pure office play and its relative value among peers. “The ability to deploy capital to accretive acquisitions or developments will surprise investors, underpinning longer-term NAV growth,” says Tan.
Overall, the research house favours the industrial sector, especially REITs with a heavy weightage within the data logistics space, business parks and logistics space, which the analyst believes can continue to deliver a positive mic of resilience and industry-leading growth of about 5% in distributions for FY20.
Moreover, recent meetings have shown that most S-REIT managers are on the lookout for more inorganic growth, which consensus have yet to price in.
“While we had previously pitched Hospitality as a “dark horse” for 2020, the onset of the virus spread made us relook this call as we see near-term earnings risks given the vulnerability of the sector to tourism demand,” says Tan.
On average, the hospitality S-REITs have seen unit prices fall by about 7.6% since Jan 20, 2020. “We will only turn buyers near the -1 SD P/NAV level which, based on our estimates, is at another 5-15% from current levels,” adds Tan.
