Following our earlier article on the outlook of REITs in 2018, here is a selection of the top REIT picks by CIMB and DBS that investors can consider picking up.
Investors Takeaway: Top REIT Picks By CIMB And DBS In 2018
1. Frasers Centrepoint Trust
Within its portfolio, Frasers Centrepoint Trust owns a good number of suburban and necessity malls. DBS views these malls as resilient income streams that do not face as much threat from ecommerce and have limited exposure to tourist spending.
DBS notes that Frasers Centrepoint Trust’s largest assets (Causeway Point and Northpoint) contribute about 70 percent of its Net Property Income (NPI). With barely any worthy competitors in the northern region of Singapore, they hold a stronghold in the northern suburban region. Given the enlarged footprint (following Causeway Point’s asset enhancement initiative) and a lack of supply in the vicinity, Frasers Centrepoint Trust retains bargaining power over retailers who want a presence in the northern region.
BUY, TP $2.37 (Current share price: $2.25)
2. Frasers Logistics and Industrial Trust
Driven by acquisitions and interest savings, Frasers Logistics and Industrial Trust managed to beat its IPO-forecasted distribution per unit (DPU). With most of its expiring leases renewed, Frasers Logistics and Industrial Trust has a high earnings visibility heading into 2018.
DBS believes that market has yet to fully appreciate the resilience of Frasers Logistics and Industrial Trust’ portfolio and ample growth opportunities from acquisitions available from its Sponsor. With an under-geared balance sheet, Frasers Logistics and Industrial Trust could “surprise on the upside through acquisitions”. DBS foresees a 14 percent total return in 12 months, underpinned by a growing distribution yield.
BUY TP $1.18 (Current share price: $1.15)
ESR-REIT recently completed two accretive acquisitions in Tuas Lane and Ang Mo Kio. ESR-REIT paid $240 million for an 80 percent stake in the high specifications industrial building in Ang Mo Kio from Ho Lee Group with an option to acquire the remaining 20 percent in the next 12 months.
CIMB likes the Ang Mo Kio acquisition that ESR-REIT made as it improves its portfolio quality in a few areas. These areas include weighted average lease expiry (WALE), land lease and rent expiry profiles as well as tenant diversification. The acquired property in Ang Mo Kio has an un-utilised plot ratio of 0.8, which gives ESR-REIT additional gross floor area for future development.
CIMB notes that ESR-REIT has been a laggard so far, compared to the REIT sector. Moving forward, CIMB is positive on ESR-REIT for its effective portfolio reconstitution and commitment by sponsor.
BUY, TP $0.63 (Current share price: $0.565)
4. Mapletree Commercial Trust
DBS picked out Mapletree Commercial Trust among the office REITs for its quality assets, strong earnings visibility and ability to ride through market cycles. DBS believes that VivoCity and Mapletree Business City Phase 1 (MBC I) are gems that stand out against other office REIT portfolios. These two assets will remain resilient, even during periods of uncertainty. Recent market developments have refreshed optimism in the office sector and thus, DBS expects a faster recovery from 2020.
BUY, TP $1.75 (Current share price: $1.63)
5. Frasers Commercial Trust
Another office play that stands out for DBS is Frasers Commercial Trust.
DBS highlights that Frasers Commercial Trust has lagged other office REITs in terms of price performance due to concerns of HP Inc vacating Alexandra Technopark (11 percent of group’s gross rental income). However, Frasers Commercial Trust’s current yield is two percent differential from its large cap peers. DBS believes that this will drive up its share price once the market starts to pick up on clarity over the HP moveout.
Given expectations of a recovery in the Singapore office market, its current significant discount to book value should be reduced.
BUY, TP $1.55 (Current share price: $1.48)