Singapore's retail REITs show the lowest vacancies since 1Q02

They are the longer term outperformers.

According to OCBC, while office S-REITs have given the best total return YTD (average of +60%), retail SREITs are the longer term outperformers (+50% total return since the end of 2006).

Here's more from OCBC:

We believe that one of the contributors to the good performance by local retail REITs is that, among private property asset classes in Singapore, retail space in Singapore shows a lower standard deviation (1.9%) in vacancy relative to office space (3.1%) and industrial space (2.9%).

The vacancies for retail properties have also generally been the lowest of the three classes since 1Q02 and we believe the outlook for local retail REITs' operational performance remains stable.

Upgrade local retail REITs to OVERWEIGHT
The local retail REIT subsector is currently trading at 1.15x P/B, as opposed to a 1.07x P/B for the overall S-REITs sector. However, we believe a premium is justified, given its status as one of the most resilient subsectors within the S-REITs space.

Moreover, we see attractive upside potential from the local REITs’ AEI activities, potential asset injection from sponsors and revaluation gains in their portfolio assets.

We retain SGREIT [BUY, FV: S$0.84] as our preferred pick among local retail REITs. We also like CMT [BUY, FV: S$2.38] and FCT [BUY, FV: S$2.13] for their suburban mall exposure, good execution and strong financial positions.

Overseas retail REITs - FRT is our top pick
We maintain our OVERWEIGHT on overseas retail REITs. We switch from CRCT [HOLD, FV:S$1.56] to FRT [BUY, FV: HK$6.63] for our preferred pick.

Despite having a 67% price appreciation YTD, we believe that FRT can still climb further, given that it is trading at a substantial discount to NAV of 25%, the deepest discount among retail S-REITs and the second largest discount among S-REITs.

We think that the assumptions underlying our valuation for FRT areconservative. We also like LMIRT [BUY, FV: S$0.52], which is trading at discount to NAV of 9%.

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