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15 February 2022

Approaching re-entry points as S-REITs near 52-week low

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S-REITs weathered a tough January with the FTSE Straits Times REIT Index slipping 6.6% while the STI remains on a firm upward trajectory of around 4%. The weakness largely came from rising expectations in the market of Fed rate hikes in 2022 with the consensus now expecting around five hikes through the course of the year.

Value buys in S-REITs

What does this mean for your portfolio?

While macro uncertainty stemming from the impending rate hikes may cloud the overall outlook for now, the positive guidance provides us with confidence that our forward projections of an 8% CAGR in distribution per unit growth remains intact. With close to half of 44 S-REITs near 52-week lows, DBS Group Research sees value at current levels.

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We like these:

Large-cap REITs

Seven out of the top 15 market cap S-REITs are within 5% of its 52-week lows. In view of the impending rate lift-off in March, we believe we are approaching the near-term bottom for S-REITs, with the sector also having hit the bottom in prices back in March 2016 after rates were last raised. We are, therefore, not sellers at these levels but are looking for an opportunity to accumulate upon the weakness.

Large-cap REITs like Ascendas REIT, Mapletree Logistics Trust and Mapletree Industrial REIT are value buys at current levels.

Reopening beneficiaries

The reopening theme remains firmly in play and we believe beneficiaries like office, retail and hospitality REITs will remain resilient.

Return-to-office will drive recovery for office REITs like Capitaland Integrated Commercial Trust and Suntec REIT. In the US, Manulife US REIT, the largest US office S-REIT, trades at attractive yields. Retail S-REITs like Frasers Centrepoint Trust and Far East Hospitality Trust stand to benefit as Singapore continues its transition to living with COVID. We also favour Ascott Residence Trust for its larger domestic exposure and pivot to the student accommodation sector.

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