According to DBS, there are three undervalued REITs that should be at the top of your consideration. These three REITs have been overlooked by the market and present buying opportunities for investors who are looking out for bargains.
Investors Takeaway: 3 Undervalued REITs That The Market Is Overlooking
- Suntec REIT
Historically, office REITs tend to trade at a premium to book value when office rents are rising. DBS notes that, since office rents are expected to be on a multi-year upturn, Suntec REIT should return to trading at a premium to its book value.
Moreover, office buildings and shopping malls in Singapore have been recently sold on 1.7-2.7 percent and 3-4 percent exit yields respectively. However, Suntec REIT’s offices and retail properties are still valued at a cap rate of 3.75-4 percent and five percent respectively. This puts Suntec REIT’s properties undervalued based on the current market condition.
The rental rate at Suntec City Mall is currently priced at a significant discount to other suburban malls. As Suntec REIT readjusts its tenant mix and picks the low-hanging fruits (e.g. placing children stores next to the playground rather than at opposite ends of the mall), the manager can drive higher foot traffic and tenant sales. This should lead to the possibility of raising rents and act as a catalyst for the REIT.
BUY, TP $2.30; Current share price $1.88
- Frasers Centrepoint Trust
DBS is among the most optimistic on the street that thinks Frasers Centrepoint Trust is able to deliver. On the back of an improving macro backdrop, DBS is forecasting an attractive DPU growth of four percent CAGR.
Frasers Centrepoint Trust scored another record quarter with operational metrics trending up and gearing inching down. The improved financial flexibility will allow Frasers Centrepoint Trust to undertake acquisitions such as Waterway Point or Northpoint City South Wing. These acquisitions should act as a catalyst to drive share price of Frasers Centrepoint.
At its current share price, Frasers Centrepoint Trust offers an attractive yield of more than 5.5 percent to investors.
BUY, TP $2.45; Current share price $2.24
- CDL Hospitality Trust
Post-recent sale of Mercure Brisbane and Ibis Brisbane, CDL Hospitality Trust’s gearing has stabilized around the 33 percent level. With the current level of debt headroom, the next debt-funded acquisition would act as a boost to CDL Hospitality REIT’s share price.
With the oversupply of hotel assets expected to ease over the next three years, DBS is projecting a recovery in the Singapore hospitality market with revenue per available room (RevPAR) potentially growing by 3-5 percent per annum. Moreover, CDL Hospitality Trust’s portfolio is priced at the bottom end of the range of other listed Singapore-hospitality REITs. Given the quality of its properties, DBS expects CDL Hospitality Trust to re-rate closer to $1.95.
BUY, TP $1.95; Current share price $1.60