ESR-REIT announces acquisition of Singapore and Australian assets, AEIs, and $150 mil equity fund raise ESR-REIT announces acquisition of Singapore and Australian assets, AEIs, and $150 mil equity fund raisePhoto: Albert Chua/The Edge Singapore

On the back of the introduction of stricter measures in the community that will affect certain Singapore REIT (S-REIT) subsectors such as retail and hospitality, analysts remain positive on the sector and see any weakness in share price as an opportunity to accumulate S-REITs at attractive prices.

To CGS-CIMB Research analysts Lock Mun Yee and Eing Kar Mei, the analysts say they remain “positive” on S-REITs given their “robust fundamentals and growth outlook”.

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“We expect S-REITs’ share price performance to be underpinned by DPU growth in FY2021 and inorganic growth potential via strong balance sheets. While near-term performance of re-opening plays could be dampened, we continue to like selective industrial sub-sectors,” they write in a May 17 report.

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As such, Lock and Eing have reiterated their “overweight” recommendation with their top picks being Ascendas REIT (A-REIT), Frasers Logistics and Commercial Trust (FLCT) and Frasers Centrepoint Trust (FCT).

For retail REITs, Lock and Eing says they prefer FCT, “which has pure exposure to suburban malls and should recover faster than its peers”.

On hospitality REITs, the analysts have maintained “add” on Ascott Residence Trust (ART), CDL Hospitality Trusts (CDLHT) and Far East Hospitality Trust (FEHT), with ART being their top pick in the sub-sector.

“We believe that [ART] would see a faster revenue per average room (RevPAR) recovery than its peers. ART has the largest exposure to countries with strong domestic demand and high inoculation rates and/or low Covid-19 cases,” they say.

“We understand that there is a strong desire to travel, although demand is affected whenever there is a lockdown. Both leisure demand and queries from corporates have also picked up recently, although the booking window remains narrow. The stocks are trading below book and offer DPU yields of 4% in FY2021, with scope for more if the REITs distribute more capital,” they write.

Following the 1Q results posted, valuations for S-REITs have remained stable at 4.65% Fy2021 yield, which is close to the +1 standard deviation (s.d.) level.

“In terms of yield spread, it is trading at a 311 basis point (bp) spread to the 10-year government bond yield, which is below the long-term spread of 380bp. This is, in part, due also to earnings still remaining below the pre-Covid-19 level,” say Lock and Eing.

S-REITs are currently trading at 1.06 times price-to-book value (P/BV), midway between the -1 s.d. and average valuation band.

Going forward, the analysts expect S-REITs to continue exploring inorganic growth opportunities with ample debt headroom and the still-low funding cost to growth in distributions per unit (DPU).

On the heightened alert phase two from May 16 to June 13, Lock and Eing estimate that every month of rental rebates given by retail landlords to F&B tenants could impact their FY2021 DPU forecast by 0.5% to 4%.

Looking ahead, the analysts believe that the leasing environment will remain “challenging”.

“While we think that the REITs will be able to maintain high occupancy at the malls, we believe that rental pressure will be inevitable, given the weak trading environment. This is especially so after the recent spike in Covid-19 cases in Singapore and tightening measures… to cope with rising Covid-19 cases,” they write.


“We have factored in full-year rental reversions of -3% to -20% for FY2021 in our forecasts,” they add.

As industrial REITs continue to demonstrate their stability with generally positive rental reversions and high occupancy, Lock and Eing estimate declines of 1-3% in industrial rents and 3-5% in factory spaces in FY2021.

“We expect data centres and hi-spec industrial spaces to be more resilient during the same period,” they write.

SEE: ESR-REIT announces acquisition of Singapore and Australian assets, AEIs, and $150 mil equity fund raise


The analysts at DBS, Derek Tan and Dale Lai share similar sentiments to CGS-CIMB’s Lock and Eing, as they see the current weakness as an opportunity to gather structural growth names.

“We are net-buyers in the recent sell-off and seek resilient performers and those that remain within the structural growth themes of industrial (logistics, data centres) which are undisrupted post Covid (FLCT, Mapletree Logistics Trust or MLT, ARA Logos Logistics Trust) while suburban retail landlord (FCT) has proven to be resilient given its exposure to essential trades and benefit from the work-from-home (WFH) trend,” Tan and Lai write in a May 17 report.

However, they believe that concerns on office landlords such as Mapletree Commercial Trust (MCT) and Keppel REIT are “overdone” as occupiers are unlikely to make further changes to their operational layout.

“We believe that the impact on office S-REITs will be more muted despite the change towards a default work-from-home (WFH) mode for most companies in the interim. We believe that the overall risk of downsizing of space especially from the financial institutions (FIs) will be better than expected and the performance this time round is likely to be more resilient,” they write.

Their optimism is less apparent on the hospitality sub-sector given expected delays in the Air Travel Bubble (ATB) and a delay in recovery in the sub-sector due to extended restrictions.

“We seek shelter in FEHT for the high revenue support from its master lease, offering a 4.0% yield,” they write.

Tan and Lai have kept “buy” on MLT, FLCT, Keppel REIT, MCT, FCT, FEHT and ARA LOGO Logistics Trust with target prices of $2.35, $1.85, $1.40, $2.25, $3, 70 cents and 85 cents respectively.

To the OCBC Investment Research (OIR) research team, the new restrictive Covid-19 measures in Singapore was a “pity” as the results for the 1QFY2021 showed “good progress” amongst S-REITs.

“After fine-tuning our assumptions post this earnings season, we are now projecting a rebound in overall DPU (market cap weighted basis) by 16.9% for the current financial year (FY2021/FY2022),” writes the team in a May 17 sector update.

“If we compare this to actual FY2019 performance (pre-Covid-19), DPU growth would be flat at -0.1%,” it adds.

The team also anticipates some “downside risks” to its forecasts, depending on the situation.

In terms of sector positioning, the team expects retail and hospitality REITs to see a “temporary setback”, with investors likely to seek shelter in REITs exposed to the industrial, logistics and data centre sub-sectors in the near-term.

On this, the team says it “likes” AREIT, FLCT, Keppel DC REIT and MLT, with “buy” calls and target prices of $3.84, $1.62, $3.32 and $2.10 respectively.

That said, it would take advantage of the weakness in share price in ART, CapitaLand Integrated Commercial Trust (CICT), FCT and Mapletree North Asia Commercial Trust (MNACT).

The team has also given “buy” calls on the above four REITs with target prices of $1.22, $2.51, $2.78 and $1.18, “given [its] expectations that the decisive actions taken by the Singapore government would help to contain the spread of the virus”.

To the team at OCBC, it expects the retail REIT sub-sector to suffer the biggest hit given the adverse impact to tenants’ sales.