OCBC is now advising investors to be selective on SREITs, in light of the macro uncertainties and muted sector growth.
The research team believes that a faster-than-expected pace of US Fed rate increase remains a possibility, especially if there are more encouraging economic data points from US and other key economies such as China. A US rate hike is likely to bring about an increase in financing costs in Singapore, a negative for the SREITs sector.
Operationally, SREITs also have to contend with the challenging leasing environment, given the supply pressures and murky demand outlook. As a result, OCBC expects the industry to eke out only 1.5% DPU growth for 2017.
Valuation-wise, SREITs no longer look compelling, as the yield spread has narrowed at a time when the geopolitical and macro situation is still uncertain.
In view of this, OCBC downgraded the SREITs sector from ‘Overweight’ to NEUTRAL. Its top picks are Keppel DC REIT, Frasers Centrepoint Trust, and Frasers Logistics & Industrial Trust.