Brokers' take: Industrial S-Reits well-positioned for growth; downside risks priced in, says DBS

DBS Group Research said it sees a good opportunity to buy industrial S-Reits (Singapore-listed real estate investment trusts) as downside risks of US inflation have been priced in, following a recent correction.

Given the sector's pivot to "new economy" assets such as business parks, logistics and data centres, industrial S-Reits are well-positioned to grow in the post-pandemic climate, said DBS in a report on Monday.

The brokerage selected Ascendas Reit, Frasers Logistics & Commercial Trust and Mapletree Logistics Trust as its top picks with a target price of S$4, S$1.85, S$2.35 respectively, on top of a "buy" call on all three.

Noting that the industrial sub-sector suffered the least income disruption among other real estate sub-sectors, analysts believe that industrial S-Reits are likely to deliver a higher distribution per unit (DPU) of about 2.5 per cent compared to FY2019 levels.

Ascendas Reit was singled out among the Reits for its "very good value" given that it traded at a yield spread that was wider than its three-year or five-year mean and 2013 taper tantrum days, said the analysts.

While most large capitalisation industrial S-Reits brought yields of about 4.9 per cent on average, which is close to pre-Covid-19 levels, Ascendas Reit rose above the rest to trade at a forward yield of about 5.6 per cent, the highest in the past few years and close to its 2013 taper tantrum days.

Analysts also highlighted a potential rerating catalyst in the Reits' access to sponsors, putting them in good position for inorganic growth.

They expect both Ascendas Reit's and Mapletree Industrial Trust's portfolio to grow about 15 per cent, if the two chooses to acquire actively.

The research house also likes Mapletree Logistics Trust for its Asia-Pacific footprint and foresee gains from its pivot into the Indian logistics space.

Though the industrial sub-sector dipped 18 per cent following Wall Street's spike in yields, analysts believe this could be an upside for investors.

"Despite the tighter spreads for the other industrial S-Reits, we believe that investors are ignoring the large cap industrial S-Reits strong DPU growth of about 7 per cent in FY2021 and pivot towards the more specialised industrial real estate class (or new economy assets), which should accelerate their growth prospects with lower earnings risk," they said.

Units of Ascendas Reit were trading at S$2.94, up 1 per cent or S$0.03, while units of Frasers Logistics & Commercial Trust were trading at S$1.41, 1.4 per cent or S$0.02 higher as at 11.34am.

Units of Mapletree Logistics Trust traded up 1.7 per cent, or S$0.03 at S$1.83, while units of Mapletree Industrial Trust traded 1.2 per cent or S$0.03 higher, at S$2.62 as at 11.37am.