REITs may offer better bet for nervous property investors

The Republic’s real-estate investment trusts (REITs) could be a better bet in the coming months for investors looking for exposure to the property sector but are nervous about the possibility of more cooling measures, according to some analysts.

“In view of the impact of cooling measures, we believe investors will remain defensive with stock picks towards the year-end. That’s why for the fourth quarter, we prefer S-REITs over the developer sector,” said analyst Lock Mun Yee from DBS Vickers, which expects Singapore REITs to outperform property counters in the near-term.

Meanwhile, Bloomberg reported last month that the local REIT market has led the global league table so far this year, returning an average 37 per cent. That is twice the gains in the United States, United Kingdom and Japan, according to Bloomberg data, and better than Australia, which advanced 24 per cent.

Frasers Commercial Trust (FCT) is one REIT highlighted by analysts.

OCBC Investment Research raised its fair value on FCT yesterday to S$1.31 from S$1.23 while maintaining its “Buy” call. The interest savings arising from the early refinancing of a S$500 million loan facility and stronger rental income after the acquisition of direct tenant leases at China Square Central are also positives, OCBC Investment said. In addition, proceeds from the recent sale of the KeyPoint property could be used to reduce debt liabilities.

DBS Vickers also sees potential in FCT. “We continue to like FCT due to its stable income profile and the positive impact coming in from its management execution, as evident in Causeway Point’s enhancement strategy. Thirdly, given that it’s trading above book, we see opportunities of inorganic growth,” said Ms Lock.

Also in the spotlight is Suntec REIT, with DBS Vickers citing its attractive yield and the positive earnings impact in the medium term from its asset enhancement initiatives.

That view is shared by Maybank Kim Eng, which earlier this week upgraded its rating on the REIT to “Buy” from “Hold”, while increasing its target price to S$1.66 from S$1.42, citing as positives the progress of refurbishment work at Suntec Mall and Convention Centre and the near complete occupancy of its office portfolio against a looming supply glut.

“With all its assets and income contribution from Singapore, we believe investors will continue to favour Suntec in the absence of forex risk, highly liquid S-REIT counters and investable alternatives,” said Maybank.

Source : Today – 10 Oct 2012

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