Brokers' take

Reits | Overweight (maintained) RHB Research Institute, Jan 8

Growing uncertainty over global economic growth and persisting trade tensions have resulted in investors preferring safe haven-yield instruments, which is supportive for real estate investment trusts (Reits). In addition, US Fed chairman Jerome Powell's recent dovish tone is positive for Reits, as one of investors' key concerns was a sharp spike in interest rates making Reits relatively unattractive. Thus, investors' continued appetite for yields and safe haven instruments is clearly visible, with 10-year US and Singapore bond yields currently at 2.66 per cent and 2.13 per cent respectively, down nearly 60 basis points from their 2018 peak.

Except for the retail segment, which is expected to see about 3 per cent newly completed space added to inventory, supply for other segments will remain benign (below 2 per cent). As the huge supply growth was a major dampener for Reits' distribution per unit (DPU) growth over the last few years, the slowdown in supply combined with stable demand should help landlords regain pricing power in 2019. Inorganic growth is also expected from the acquisitions that Reits have made in recent years. While a broad-based sector outperformance is not expected, we expect S-Reits with stock-specific positives to continue to outperform this year.