S-REITs won't disappoint in 2013: OCBC

Thanks to higher yield spreads.

Since OCBC's S-REIT strategy report highlighted an expected continued interest in S-REITs, the FTSE ST REIT Index has risen by 3.8% versus benchmark index STI’s gain of 1.8% over the same period. Among the S-REITs under OCBC's coverage, those with Buy ratings also generally outperformed the broader market, raking up a growth of 4.5% on average.

Here's more from OCBC:

Strong re-rating among our preferred picks
Most of our preferred picks, we note, have also fared very well. Specifically, Ascott Residence Trust, Frasers Commercial Trust and Starhill Global REIT (SGREIT) have rerated by 5.2-8.4% since 17 Dec 2012. This resulted in their unit price performances falling within the 80th percentile of the SREITs’ returns under coverage.

Expecting firm financial performance
In the week ahead, S-REITs will commence the results reporting period for 4QCY12. We expect majority of the S-REITs to showcase sturdy financial performance and balance sheets, aided by contributions from their investments, healthy operating metrics and active capital management.

16 (66.7%) out of the 24 S-REITs are also expected to post revaluation of their assets. Based on the trend of property prices in the various subsectors, we anticipate the S-REITs to post firm/ positive revaluations of their portfolio properties.

Our 2013 investment thesis is still intact For 2013, we believe that S-REITs will continue to retain their shine in 2013, underpinned by comparatively higher yield spreads against its peers in other geographical markets, continued interest in lower-beta yield plays by investors and a generally positive sector outlook. As such, we reiterate our OVERWEIGHT view on the SREIT sector.

Cooling measures introduced in industrial market
On 11 Jan, we note that the Singapore government has introduced a Seller's Stamp Duty (SSD) on industrial property for the first time to discourage short-term speculative activity. We see this move as a direct and effective way to cool down the industrial market and make industrial properties more affordable for genuine industrialists.

We do not expect any significant impact on larger industrial REITs, but believe the development may be a mild positive for smaller industrial REITs on their acquisition front since the bulk of the speculative fizz is likely to come from smaller industrial properties.