“We believe that the retail and hospitality sub-sectors will be the first to benefit from further economic reopening. Vaccine rollout has improved visibility, which is expected to lift the share-price overhang for hospitality REITs,” she notes. For retail, Ong believes food and beverage (F&B) sales could be lifted due to the loosening of restrictions under Phase 3 of re-opening. “Central malls are expected to enjoy a more pronounced recovery due to returning office crowds. Suburban malls should, nevertheless, stay resilient, as more firms announce permanent hybrid work arrangements,” she says. “Dominant central and suburban malls, which are located near transport nodes are likely to be prioritised when retailers consolidate stores,” she adds. She has indicated that she prefers Frasers Centrepoint Trust (FCT) at “buy” with a target price of $2.93 “for its exposure to resilient, necessity-driven spending at suburban malls and growth in suburban catchments”. To Ong, the hospitality sector faces a long road to recovery, as the industry may return to pre-Covid levels only in 2023/2024, in line with the 3-5 year recovery timeline proposed by the Singapore Tourism Board (STB). That said, she expects some MICE demand to return as certain aspects of business still require physical meetings. “Hospitality counters are still trading at depressed levels and should be positioned for a recovery. High efficacy rates of approved Moderna and Pfizer-BioNTech vaccines and high participation in the COVAX* programme have lifted the cloud of uncertainty and provided a more visible timeline to recovery. This should lift the price overhang for hospitality REITs,” she says.
SEE: Keppel DC REIT rides digitalisation wave on behalf of sector
S-REITs with growth potential While S-REITs have underperformed the Straits Times Index (STI) in 10 out of 12 periods, DBS Group Research analysts Derek Tan and Dale Lai believe the weakness is an opportunity to accumulate. The way they see it, “we expect that a majority of the steepening have already happened (spot 85 basis points or bps10/2-year rate vs. expected 80 bps by 1HFY2021), even though the current hikes in 10-year yields are likely near-term headwinds, they say. “Our analysis also showed that S-REITs generally turned outperformers in the subsequent 6-12 months after a pause in hikes in the 10-year yields,” they write in a Feb 19 note.