Singapore REITs (S-REITs) experienced a “breakout month” on news of domestic relaxation and border reopening trends in Singapore, with the FTSE ST Real Estate Investment Trusts Index (FSTREI) climbing 5.5% m-o-m, beating the STI’s rise of 5.1% m-o-m.

In a flash note on April 1, DBS Group Research’s Geraldine Wong and Derek Tan says catalysts for the sector were “a mixed bag”. But there was a lift-off from January and February, when many stocks reached a 52-week low.

They add that while sentiment continues to be mixed given the risk of geopolitical uncertainties, potentially more US Federal Reserve rate hikes in the pipeline and inflation risks, domestic catalysts were a breakthrough for the S-REITs sector.

These include the fact that Singapore will transit to a “new normal reopening stance” under the Vaccinated Travel Framework (VTF) that commenced on April 1.

Major domestic relaxation protocols, such as a 75% return to office and a doubling of dine-in cap to 10 people per group have also propelled major moves within the reopening trade sectors of office, retail and hospitality, the analysts point out.

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This coincided with the top-performing sectors for the month, namely hospitality, office and healthcare REITs, which saw gains of 14.4%, 5.8% and 5.1% m-o-m respectively.

The growth momentum remains intact as reopening trades see “a breath of fresh air” and the analysts expect an 8% CAGR in distribution per unit (DPU) growth for the sector in FY2022-2023.

Describing the market sentiment as “strong” in March, Wong and Tan says they think that in 2Q2022, share prices of S-REITs may trade sideways.

This is as market attention will likely rotate towards near term results and absorb the impact of inflation (such as utilities and maintenance costs) on distributions.

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“In addition, the possibility of an even sharper interest rate hike by the Fed of 50 basis points (bps), as opposed to the initial 25 bps expected by the market, is an event that we are watching keenly,” they say.

Furthermore, they write that while safe-haven asset classes such as the S-REITs may be a temporary shelter for investors, the reversal of geopolitical tensions may also see investments flow out of the sector.

Wong and Tan expect positive news on both the border opening and relaxed measures, which should start to show in metrics come 1H2022. However, there is some lag time in the interim, mostly in 2Q2022, say the analysts.

They have given a positive rating to the office, retail and hospitality sectors, with their top picks being Capitaland Integrated Commercial Trust (CICT), Suntec REIT, Fraser’s Centerpoint Trust (FCT) and Ascott Residence Trust (ART).

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