The Singapore office REIT sector is currently mispriced and undervalued, said DBS Bank in an investment report released on 9 November.
The bank pointed to the keen contest over a land parcel tender in Singapore’s Central Boulevard, which drew record bids from local and international developers, as an indication that the country's office market remains attractive.
“Beyond the bullish signal by developers on the medium outlook for the Singapore office market, the bids made including those made by developers who manage various [Singapore REITs], demonstrate the mispricing and undervalued status of the office REIT sector”, said DBS.
The bank noted that the Singapore portfolios of various office REITs are currently at an implied price per square foot, by net lettable area, of between SGD1,900-SGD2,450 (USD1,365 - USD1,760).
This is significantly below the SGD3,000 per square foot implied from IOI Properties’ bid for the Central Boulevard site, said DBS.
Among Singapore REITs, DBS Bank has identified Keppel REIT as its top pick, with a target price of SGD1.23.
“We like [Keppel REIT] given it has the least tenancy risk among the office [Singapore REITs], with no leases up for renewal in 2016 and only 5% due to expire in 2017”, said DBS.
“In addition, its Singapore office portfolio which is the most comparable to buildings in recent market transactions and the proposed office block on the Central Boulevard site trades at a substantial discount, at an implied price of circa SGD2,450 per square foot”, it added.
Units of Keppel REIT finished the trading day about 1% lower from its previous close on the Singapore Exchange to end at SGD1.075.