Comprehensive Analysis of Singapore REITs: Navigating the Current Market Dynamics
Date: 18 November 2024
Broker: OCBC Investment Research
Introduction
The Singapore Real Estate Investment Trusts (S-REITs) sector has been navigating through a series of market fluctuations and economic challenges. This detailed analysis provides an in-depth look into the individual performances of various companies within this sector, offering insights into their current positions and future prospects as assessed by OCBC Investment Research.
Overall Market Sentiment
The S-REITs sector initially found a bottom in late June 2024, buoyed by expectations of a rate cut cycle from the Federal Reserve. However, subsequent corrections in share prices were influenced by the rebound in US Treasury yields and political changes in the US. As a result, there is an expectation of a more risk-off sentiment in the near term amid elevated yields.
Frasers Logistics & Commercial Trust (FLT)
Frasers Logistics & Commercial Trust is positioned as a top pick, with a fair value of SGD1.28 and a current trading price of SGD0.96. FLT has demonstrated robust rental reversion figures, particularly in its logistics and industrial portfolio, which saw an impressive 36.4% increase in 4QFY24. Despite some impairments in its European and UK assets, FLT managed a valuation uplift for its Australian assets, underscoring its resilience. The recommendation is a “Buy” based on potential total returns of 41%.
CapitaLand Ascott Trust (CLAS)
CapitaLand Ascott Trust has been identified as a resilient player in the hospitality sector, navigating through mixed results amid global economic shifts. With a fair value of SGD1.06 and a current price of SGD0.885, CLAS offers a total potential return of 26%. The trust reported positive occupancy and RevPAR figures, with a particular strength in the Singapore market. The recommendation remains a “Buy” due to its diversified portfolio and strong market presence.
CapitaLand Ascendas REIT (CLAR)
CapitaLand Ascendas REIT showcases a strong industrial portfolio with positive rental reversions across various geographies. Trading at SGD2.57 with a fair value of SGD3.32, CLAR’s overall rental reversion stood at 14.4%, driven by significant gains in the US and Australia. The REIT maintains a healthy occupancy rate despite slight pressures, making it a “Buy” with a projected return of 35%.
CapitaLand Integrated Commercial Trust (CICT)
CICT, with a fair value of SGD2.41 and current trading at SGD1.98, shows promising potential with a 27% total return. The trust’s office rental reversions in Singapore are strong, supported by high occupancy rates. However, challenges in the German and Australian markets have contributed to some occupancy variability. Despite this, CICT remains a “Buy” due to its robust Singapore portfolio.
Parkway Life REIT (PREIT)
Parkway Life REIT continues to be a stable performer in the healthcare sector, with a fair value of SGD4.49 and current trading at SGD3.58. The REIT has shown growth in distributable income despite currency headwinds, supported by strategic expansion into France. With a focus on diversification and stability, PREIT is recommended as a “Buy”, offering a potential total return of 30%.
Sector-Specific Performance Insights
Retail
Retail S-REITs presented mixed results, with Singapore assets showing resilience through positive rental reversions and high occupancy. However, properties in China and Hong Kong faced challenges, reflecting broader economic uncertainties in these regions.
Industrial
Industrial S-REITs under coverage displayed robust rental reversion figures, particularly for logistics properties. The divergence in performance across geographies, notably in China, highlights the need for strategic management in varying market conditions.
Office
The office sector observed steady rental reversions with a focus on Singapore’s core CBD areas. Despite new supply pressures, demand for premium spaces remains strong, supporting stable rental trends.
Hospitality
Hospitality REITs reported mixed results, with Singapore’s RevPAR remaining flat despite significant events like the Formula 1 Grand Prix. Global market dynamics, such as US and European performance, continue to influence this sector’s outlook.
Conclusion
The S-REITs landscape is marked by cautious optimism, with valuations appearing more reasonable amid recent share price weaknesses. However, the risk-off sentiment persists due to elevated yields. Investors are advised to focus on quality names backed by strong sponsors, with an emphasis on financial stability and strategic asset allocation.
