S-REITs have rallied in 2016 as BoJ and ECB pushed into negative interest rates and Fed turned decidedly more dovish. Consequently, Maybank Kim Eng is upgrading the sector to Neutral from Sell.
Spurred by easy monetary policies, global bond yields have collapsed much faster than REITs, pushing the yield spread to +1SD above the mean. As investors seek income amid volatility and low growth, the inflows into REITs should continue globally.
In Singapore, REITs offer the second widest spreads to risk-free rates compared to their developed market peers. Given the sustained investor interest, Maybank Kim Eng has tightened the yield targets of its coverage universe.
However, the house caution that despite being cheap globally, S-REITs are expensive on a historical basis, relative to the SGS 10Y yield, as well as the STI yield, trading near -1SD below its historical mean. This explains the house’s Neutral view versus the street's more positive stance.
For exposure, Maybank-KE likes Ascendas REIT and Mapletree Industrial Trust, and keeps its Sell ratings on CapitaLand Mall Trust and Frasers Centrepoint Trust.
Maybank Kim Eng ratings on S-REITs:
Ascendas REIT: Upgraded to Buy from Hold, TP raised to $2.60 from $2.23
MINT: Upgraded to Buy from Hold, TP raised to $1.71 from $1.50
AIMS AMP: Upgraded to Buy from Hold, TP raised to $1.47 from $1.45
Cache Logistics Trust: Upgraded to Buy from Hold, TP raised to $0.94 from $0.93
Suntec REIT: Hold, TP $1.56
Keppel REIT: Hold, TP $0.97
CCT: Hold, TP $1.40
Starhill Global: Hold, raised TP to $0.79 from $0.75
MCT: Upgraded to Hold from Sell, raised TP to $1.37 from $1.18
FCT: Sell, TP raised to $1.78 from $1.63
CMT: Sell, TP raised to $1.97 from $1.66