SINGAPORE (July 16): Singapore is well into Phase 2 of reopening the economy and social distancing restrictions are gradually easing. With that, UOB Kay Hian is keeping its “overweight” rating on the Singapore REITs (S-REITs) sector.

Compared to the previous week, UOBKH S-REIT Index retraced marginally by 0.6% to 252.1. Some of the week’s top performers include ARA LOGOS Trust, gaining 6.1% with the appointment of new CEO Karen Lee; and Keppel DC REIT, gaining 3.6% as data centres are beneficiaries of Covid-19 pandemic.

This is followed by hospitality REITs Frasers Hospitality Trust (FHT), CDL Hospitality Trust (CDREIT) and Ascott Hospitality Trust (ART), which increased 2.1%, 1.9% and 1%, respectively.

Hotels have been given the green light to usher in locals on staycations and hoteliers can apply to Singapore Tourism Board (STB) to resume providing accommodation for purposes of leisure and opening recreational areas for children.

However, certain safety and social distancing rules still apply for guests within the hotel compound, such as wearing masks (except when eating or in their own rooms) and only five individuals allowed to gather at any guest room.

Hotel staff will screen guests for symptoms, including fever and running nose, while safety ambassadors are deployed to remind guests against clustering or loitering at common areas.

However, not all REITs are seeing improvement as the US REITs are troubled by a second wave of Covid-19 infections. Also, Lendlease REIT saw a 3.7% drop as OCBC, including subsidiaries Great Eastern and Lion Global, has recently trimmed their holdings.

In a Tuesday report, lead analyst Jonathan Koh is shining the spotlight on Frasers Centrepoint Trust (FCT), which is a pure play on suburban retail malls in Singapore that provides a distribution yield of 4.8%. He has a “buy” call on FCT with a target price of $2.85.

FCT has exercised its rights of pre-emption under the by-laws of PGIM Real Estate AsiaRetail Fund (ARF) to acquire 12.07% of ARF for $197.2 million. The acquisition was completed and increased FCT’s interest in ARF from 24.82% to 36.89%.

The analyst sees this acquisition as “mildly DPU accretive”. Assuming the acquisition had been effected at the beginning of FY19, pro forma FY19 DPU would have increased 0.13% to 11.987 cents, while NAV per unit would have stayed unchanged at $2.21.

ARF owns five suburban retail malls, namely Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1, totalling 1.0 million sq ft of NLA. These suburban retail malls share similar profile and characteristics to FCT’s malls, which focus on essential spending and F&B.

“They are located in populous residential areas and close proximity to transportation nodes. These characteristics ensure suburban retail malls are more resilient despite the Covid-19 pandemic,” says Koh.

As at 12.50pm, units in FCT are trading at $2.36.