Comprehensive Analysis of Singapore REITs: Insights and Recommendations

Published by OCBC Investment Research on 18 November 2024, this detailed equity research report dives into the performance and outlook of Singapore’s Real Estate Investment Trusts (REITs) sector. The report offers insights and investment recommendations on various REITs, backed by thorough analysis of recent developments and financial metrics.

Sector Overview

The Singapore REITs (S-REITs) sector recently witnessed a share price correction, making valuations appear more reasonable. However, the sentiment has shifted towards risk-off due to elevated US Treasury yields. OCBC recommends selectively accumulating quality names during further pullbacks. Top picks include Frasers Logistics & Commercial Trust, CapitaLand Ascott Trust, CapitaLand Ascendas REIT, CapitaLand Integrated Commercial Trust, and Parkway Life REIT.

Key Developments

Recent activities include Mapletree Logistics Trust’s divestment of Mapletree Xi’an Logistics Park in China, and CapitaLand Ascendas REIT’s acquisition of land in South Carolina, US, for developing a green-certified logistics distribution property. CapitaLand Integrated Commercial Trust sold 21 Collyer Quay, with proceeds potentially reducing its leverage from 39.9% to 38.3%.

Price Performance and Market Sentiment

The FTSE ST REIT Index saw a slight decline of 0.4% week-on-week, while the STI rose by 0.5%. The iEdge S-REIT Index’s forward P/B ratio stands at 0.84x, below the 8-year average of 0.98x, indicating potential undervaluation.

In-Depth Company Analysis

Office Sector

• IREIT Global: Trading at SGD 0.285, with a market cap of SGD 383.3 million. The REIT has faced a YTD return of -23.4% and holds a debt-to-asset (D/A) ratio of 37.7%. Price-to-book (P/B) ratio stands at 0.49.
• Keppel REIT: Valued at SGD 0.870, with a market cap of SGD 3,344.3 million. It offers a forward yield of 6.9% and a P/B ratio of 0.69. YTD return is marginally positive at 1.0%.
• Manulife US REIT: Priced at USD 0.085, with a significant YTD decline of 2.5%. It has a high D/A ratio of 54.3% and the lowest P/B ratio in its category at 0.25.

Retail Sector

• CapitaLand Integrated Commercial Trust: With a market cap of SGD 14,427.5 million, it offers a forward yield of 5.7% and a P/B of 0.93. It has a positive YTD return of 2.7%.
• Frasers Centrepoint Trust: Trading at SGD 2.110, it has a market cap of SGD 3,835 million, with a forward yield of 5.9% and a P/B of 0.95. The YTD return is slightly negative at -0.5%.

Industrial Sector

• CapitaLand Ascendas REIT: Priced at SGD 2.570, with a forward yield of 6.1% and a P/B of 1.13. The REIT has a negative YTD return of -9.6% but remains a top pick.
• Mapletree Industrial Trust: At SGD 2.270, it offers a forward yield of 6.1% and a P/B of 1.32. The YTD return is -2.9%.

Hospitality Sector

• CapitaLand Ascott Trust: Trading at SGD 0.885, with a forward yield of 7.0% and a D/A ratio of 38.3%. It has a YTD return of -5.0% and remains a recommended buy.
• CDL Hospitality Trusts: Valued at SGD 0.870, offering a forward yield of 7.0% with a negative YTD return of -16.8%.

Healthcare Sector

• Parkway Life REIT: Priced at SGD 3.580, with a market cap of SGD 2,335.5 million. It offers a forward yield of 4.2%, with a positive YTD return of 3.3% and a P/B of 1.56.

Data Centre Sector

• Keppel DC REIT: At SGD 2.200, it has a forward yield of 4.5% and a P/B of 1.61, with a notable YTD return of 18.9%.

Conclusion

Overall, the report from OCBC Investment Research provides a comprehensive overview of the S-REITs sector, highlighting both opportunities and challenges. With strategic recommendations and in-depth analysis of individual REITs, investors are guided on where to focus their investments in a volatile market. The emphasis on quality names with strong sponsors and financial health positions investors to navigate the current economic landscape effectively.