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Goldman Sachs: 3 Sectors to Focus in S-REIT
Aspire, Hot Picks | 25 November 2015
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By: Raymond Leung
Articles (142) Profile

Since the Federal Reserve (Fed) announced the interest rate hike this year, prices of S-REITs have been falling. S&P Singapore REIT has fallen by 11.4 percent year-to-date (YTD).

Source: YTD Chart of S&P Singapore REIT, S&P Dow Jones Indices

However, a report from Goldman Sachs Global Investment Research suggests that we can now relook at S-REITs. Three properties sectors are highlighted in this report, where the primary focus will be on the quality, demand and supply.

1. Office
Value has surfaced in the office sector as rents fell and supply is expected to remain stagnant beyond 2016. Demand for Singapore office properties remains high as institutional investors continue to show interest. It was reported that BlackRock is in another round of talk with potential buyers for Asia Square Tower 1 following the fallout of negotiations with a consortium that consists of CapitaLand and Norges.

According to an article by Reuters, Norges was said to be interested to buy properties in Singapore in the coming months.

Source: YTD Chart of CCT, Google Finance

CapitaLand Commercial Trust (CCT) is one such REIT that offers investors a pure exposure to Singapore’s office sector. With Fed interest rate hike in sight, the YTD price of CCT fell by 24 percent; presenting more value to investors. Goldman Sachs reiterated their “Buy” call on the share with a target price of $1.69.

2. Business Park & Retail

Business park and retail sector appeared to have defended themselves against the pressure from the rising interest rates. However, business park performed more defensively than retail with a stronger rental reversion for the former.

Source: YTD Chart of AREIT, Google Finance

Ascendas REIT (AREIT) has a portfolio of business parks, logistic properties and industrial spaces in Singapore, China and Australia. It has performed defensively falling by 4.9 percent YTD compared against the benchmark’s 11.4 percent. Goldman Sachs gave AREIT a “Hold” call but with a potential upside of 13.6 percent.

Source: YTD Chart of MCT, Google Finance

Preference was given to Mapletree Commercial Trust (MCT) given its mix of retail and business park portfolio. Notably, MCT owns Singapore’s largest mall, Vivo City and PSA Building. It has the first right of refusal for Mapletree Business City, which is a potential catalyst for the REIT. Goldman Sachs gave MCT a “Buy” call with a target price of $1.66.

3. Hotels
Hospitality sector in Singapore is facing strong headwinds as the country experiences a slower tourist arrival growth and an increased supply in hotel rooms. Due to weaker currency vs SGD, arrivals from Australia, Indonesia and Malaysia fell. These nations were among the top five market for visitors to Singapore.

Source: YTD Chart of FEHT, Google Finance

Performance for Far East Hospitality Trust (FEHT) was far from rosy this year. Lower demand and higher supply of rooms resulted in pressure on Average Room Rates (ARRs). FEHT fell by 25.6 percent YTD, more than double the fall of the benchmark. Goldman Sachs downgraded the trust to “Sell” from “Hold” with a target price of $0.61.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

CapitaLand Commercial Trust  2.130 -- --   
Business: Co is a real estate investment trust in the office space.

Insight: Apr-19, 1Q19 gross revenue and NPI rose 3.5% and 3... Read More
Ascendas REIT  3.110 +0.04 +1.30%   
Business: Co invests in the real estate markets of Singapore and Australia.

Insight: Apr-19, FY19 gross revenue and NPI inched up 2.8% ... Read More
Mapletree Commercial Trust  2.220 +0.06 +2.78%   
Business: Invest in income producing real estate used for office & retail purposes.

Insight: Apr-19, FY19 revenue inched up 2.4% due to higher ... Read More
Far East Hospitality Trust  0.675 -0.005 -0.74%   
Business: Invests in a diversified portfolio of income-producing hospitality-related real estate in Singapore. [FY18 Turnover] Hotels & services residences (80.6%), retails & offices (19.4%).

Insight: May-19, 1Q19 gross revenue increased 8% to $27.8m ... Read More

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