Singapore industrial Reits: Why analysts recommend ‘buy’

Research teams are bullish on Singapore-listed real estate investment trusts (S-Reits) that are focused on industrial properties, suggesting investors to ‘accumulate’ on dips.

  • Ascendas Reit (SGX: A17U) share price rises 0.3% to S$2.96
  • Frasers Logistics & Commercial Trust (SGX: BUOU) declines to S$1.39 per share
  • Mapletree Logistics Trust (SGX: M44U) unit price climbs 1.6% to S$1.88
  • Industrial S-Reits’ potentially robust distributions are not priced into share prices yet, DBS says
  • OCBC recommends longer-term investors to buy on dips of high-quality names
  • Trade Singapore stocks with an IG account

Will industrial S-Reits’ distributions grow 7% in 2021?

DBS Group’s research team reckons it is now ‘time to accumulate’ holdings of large-cap industrial S-Reits, given that their stock prices have corrected by 18% from their recent peak, due to a spike in 10-year yields and rotational interest into the more cyclical retail and office subsectors.

That said, DBS sees value emerging, as the latest price slump mirrors closely the 21% peak-to-trough drop in 2013, but the fundamentals are stronger now.

The analysts are buying on the dips, as they expect distribution per unit (DPU) growth to accelerate to about 7% in FY2021.

DBS estimated large-cap industrial players will record DPU growth of 7% this year, fuelled by accretive deals amid ‘a virtuous cycle of acquisition growth’. It believes the industrial S-Reits’ ability to deliver robust pre-pandemic distributions has not been priced into the stock prices.

Meanwhile, OCBC analysts noted that the overall S-Reit sector’s shares have come under selling pressure in recent weeks, in response to the sudden spike in sovereign bond yields.

OCBC is thus more cautious in the near term and expects volatility in the months ahead. However, investors should also focus on the underlying drivers, such as a stronger economic outlook, which will support a recovery in S-Reits’ operational performance, OCBC suggested.

Which Reits are analysts’ favourites?

DBS’ picks are Ascendas Reit (A-Reit), Frasers Logistics & Commercial Trust (FLCT), and Mapletree Logistics Trust (MLT).

It noted that A-Reit and FLCT offer ‘good value with yield spread of around 4.1%, wider than pre-pandemic levels’. The research team also likes MLT for its Asia-Pacific footprint and pivot into the Indian logistics space.

DBS’ target prices on A-Reit, MLT, FLCT, and Mapletree Industrial Trust (MINT), are S$4, S$2.35, S$1.85, and S$3.25 respectively.

OCBC suggested investors with a longer-term horizon to buy on dips of high-quality S-Reits which are expected to benefit from secular growth trends with room for solid inorganic growth opportunities.

Top ‘buy’ ideas for OCBC are A-Reit with a S$3.89 fair value (FV), FLCT with a S$1.62 FV, Keppel DC Reit with a S$3.51 FV, MINT with a FV of S$3.51, and MLT with a S$2.17 FV.

On Sunday, Citi wrote that year-to-date, MINT has underperformed S-Reits, and its current valuations thus represent a ‘good buying opportunity’ with estimated yields of 4.7% for FY2021 and 5.2% for FY2022.

By Tuesday’s midday break, A-Reit was trading 0.3% higher at S$2.96, FLCT fell 0.7% to S$1.39, MLT climbed 1.6% to S$1.88, MINT advanced 1.5% to S$2.68, while Keppel DC Reit gained 1.9% to S$2.66.

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