SINGAPORE (June 23): CIMB is maintaining its “overweight” on Singapore’s REIT sector supported by a flattening yield curve and abating supply pressures in 2018.

In a Friday report, analyst Yeo Zhi Bin is positive on business parks and believes that it would be the first sub-asset class to post recovery gains this year.

“We project occupancy to increase to 88.5% by end-17F (1Q17: 84%) and 92.4% by end-18F. We believe that rents would start to strengthen when island-wide occupancy meets the 90% mark,” says Yeo.

Although Ascendas REIT has the largest market share for business parks, Yeo believes that the good news on business park recovery and further acquisitive DPU growth have largely been priced in.

Yeo therefore prefers Frasers Logistics & Industrial Trust (FLT), Mapletree Commercial Trust (MCT) and Mapletree Greater China Commercial Trust (MAGIC) as the trio showed favourable relative performance and YTD performance.

Yeo likes FLT as it is the largest pure-play proxy for Australian industrials.

“Post the acquisition catalyst, we believe that the market would continue to re-rate FLT on DPU growth from inorganic contributions and the strengthening Aussie dollar,” says Yeo.

Yeo also likes MCT as it has a “good blend of resilience”. This is through the company’s stable rents in business parks and growth from Vivocity. Yeo foresees that Vivocity and Mapletree Business City will show stronger growth, compared with its peers.

MAGIC also shows a resilient portfolio, which is backed by Festival Walk, says Yeo.

“We also deem it a proxy for the nascent Hong Kong retail recovery (which has shown initial signs of bottoming out),” says the analyst.

Units of FLT, MCT and MAGIC were trading at S$1.04, S$1.56 and S$1.08 respectively, during mid-afternoon break today.