PhillipCapital research analyst Natalie Ong has maintained her “overweight” call on the Singapore REIT (S-REIT) sector as all nine REITs under the brokerage stood in line with Ong’s estimates in the 1QFY2021.

The REITs under PhillipCapital’s coverage are Ascott Residence Trust (ART), Frasers Centrepoint Trust (FCT), Dasin Retail Trust, Lendlease Global Commercial REIT (LREIT), Manulife US REIT (MUST, Prime US REIT, iREIT Global Trust, Ascendas REIT (A-REIT) and Keppel DC REIT (KDC REIT).

PhillipCapital has kept “accumulate” or “buy” on all nine REITs.

While S-REITs have traded down following the tightening of Covid-19 measures in Singapore, Ong believes distributions per unit (DPU) for S-REITs should “stay in excess of interest-rate growth”, providing upside for the sector.

“With the Singapore economy on the mend, we think that requests for rental relief will wind down. S-REITs are expected to resume positive DPU growth, with all sectors except hospitality recovering to pre-pandemic DPU levels. S-REITs under our coverage are expected to deliver 3.6-8.8% FY2021 DPU yields,” she writes in a May 25 report.

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On this, Ong has indicated that the industrial and retail sub-sectors are her preferences.

“We believe the Industrial sub-sector will be resilient. Industrial REITs have been the most active on the acquisition front, owing to an early recovery in their share prices. We think Industrial REITs will continue to lead the pack in acquisitions for the rest of 2021,” she says.

“Continued border closures and acclimatisation to online shopping have returned the RSI to pre-pandemic levels. Barring a second circuit breaker and closure of malls, we think earnings impact on retail REITs will be marginal. Vacancy risk may be mitigated by supportive supply conditions. Recent share-price appreciation has limited upside for the hospitality sector,” she adds.

In her sector overview, Ong foresees that developers may tap the Singapore market through REIT IPOs in the next 12 months.

“Unlisted Mapletree Investments is exploring a US$1 billion ($1.32 billion) student housing REIT IPO while City Developments (CDL) is in talks with Qatar Investment Authority to inject HSBC's London headquarters building into a planned sterling-denominated UK commercial REIT by City Developments. The potential deal could boost the REIT's portfolio to £1.8bn ($3.4 billion) from £600 million,” she says.

The tighter Covid-19 measures in Singapore is likely to weigh on F&B operators and several REITs, although support for F&B tenants and operators may keep them afloat.


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The cancellation of the World Economic Forum (WEF) in August is a “minor setback” for the hospitality industry, which may result in a loss of confidence and reduction of corporate travellers and bookings, says Ong.

However, the increase in the number of Covid-19 cases may require the government to maintain or increase the number of hotels used for block booking or quarantine purposes, she adds.

In the industrial sub-sector, Ong sees construction slippages pushing new supply from 2020 to 2021.

“Much of the new stock will come from light-industrial assets. Low pre-commitments of 17% are likely to weigh on the segment. Leasing pressure on the other asset classes is moderate. About 63% of the 9.2% increase in business-park stock has been pre-committed and 27% of the new warehouse stock leased. Hi-spec assets are 74% pre-committed,” she says.

The government’s new 10-year plan to expand Singapore’s manufacturing sector by 50% may lift the sub-sector in the mid-term.

“Industrial S-REITs had shown units to prospective foreign tenants in 4QFY2020. Restrictions in the construction sector may thrust prospective tenants towards convert-to-suit assets instead of greenfield facilities. This may benefit existing industrial owners and help to improve occupancies further,” she adds.


SEE:DBS says it prefers FCT and LREIT among Singapore retail REITs for 'essential tenant trades' and attractive valuations


In the retail sub-sector, Ong believes suburban malls will remain “in favour” supported by “increased day-time populations” from the current work-from-home arrangements.

Among the sub-sectors, FCT is Ong’s preferred retail pick for its exposure to “resilient, necessity-driven spending at suburban malls and growth in suburban catchments”.

She has kept FCT at “buy” with a target price of $2.88.

Among the office S-REITs, where lacklustre demand and downsizing from the adoption of new WFH arrangements will “likely result in office supply in the near term”.

“Rents could remain under pressure,” says Ong.

That said, the long-term outlook of the office market is optimistic as Singapore remains one of the top cities for the location of regional headquarters, she adds.

Within the office sub-sector, MUST is Ong’s preferred pick for its defensive portfolio with a long weighted average lease expiry (WALE) of 5.7 years and lower downsizing risks in the US office market.

Ong has kept “buy” on MUST with a target price of 84 US cents.

A-REIT, among industrial S-REITs, is Ong’s top pick, for its diversified portfolio. She has kept “accumulate” on A-REIT with a target price of $3.73.

“A-REIT is also positioned to capture New Economy sectors. Some 93% of its assets are hi-spec, logistics and business-park assets catering to the biomedical, hi-tech, e-commerce and knowledge-driven industries,” she writes.

While the hospitality sector faces a “long road to recovery” with the industry returning to pre-Covid-19 levels only in 2023-2024, Ong says she prefers ART as she expects it to make a faster recover from its 74% exposure to countries with large domestic markets.

She has kept “buy” on ART with a target price of $1.17.