UOB Kay Hian has maintained its “overweight” rating on the Singapore REIT (S-REIT) sector.
Analyst Jonathan Koh notes that S-REITs has in the first two weeks of August suffered a mild decline, but has underperformed the Straits Times Index (STI) by 1.8%. Inflation has also moderated with US CPI easing 0.6 percentage points (ppt) m-o-m to 8.5% in July.
In those two weeks, Perennial and Alibaba also announced that they have entered into a consortium to build the tallest building in Singapore, as they seek to redevelop the former AXA Tower at 8 Shenton Way into a mixed-use integrated development.
The Urban Redevelopment Authority (URA) has approved a height of 305m for the 63-storey building, the highest that the authorities have granted. The approved gross floor area (GFA) of 1.6m sq ft includes 25% additional GFA of 310,350 sq ft granted under the CBD Incentive Scheme.
Offices are expected to make up slightly more than half of the GFA. It also has a retail podium, an all-suite hotel and 215 apartments for sale. The redevelopment is a prime example of the government’s effort to create more buzz downtown, which has indirectly led to the depletion of office space within core CBD.
The way Koh sees it, amid the buzz, S-REITs are resilient due to their defensive characteristics and stable cash flows despite the outlook being clouded by the Russia-Ukraine war and potential economic slowdown.
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With that, he has decided to focus on the S-REITs with reopening plays. His top picks include Frasers Centrepoint Trust (FCT), Far East Hospitality Trust (FEHT) and Lendlease Global Commercial REIT (LREIT).
UOBKH has “buy” call on the three REITs with target prices of $2.74, 83 cents and 96 cent, respectively.
Some outperformers during the two weeks period include Cromwell European REIT, Mapletree Pan Asia Commercial Trust (MPACT), Mapletree Logistics Trust (MLT), ESR-REIT and DigiCore REIT.
The underperformers were US REITs: Manulife US REIT (MUST), Prime US REIT and Keppel Pacific Oak REIT (KORE). Additionally, CDL Hospitality Trust (CDLHT) and OUE Commercial Trust, both of which have exposure to the hospitality sector have underperformed, as they declined by 3.0% and 2.6% respectively.
