PhillipCapital’s research analyst Natalie Ong has maintained her “overweight” recommendation on Singapore real estate investment trusts (S-REITs), as the FTSE S-REIT Index fell 4.6% m-o-m, in line with the Singapore market.

To Ong, she expects catalysts in the REITs’ unit prices due to acquisitions fuelled by “conducive interest rates”, she writes in a Feb 22 report.

“REITs have resumed their quest for acquisitions, spurred by low interest rates and share-price recoveries,” she says.

“The establishment of travel channels with more countries is expected to pave the way for more overseas asset-acquisition negotiations. With interest rates expected to remain low, share prices recovering and confidence returning to capital markets, there could be more M&A opportunities for REITs,” she adds.

On that, Ong has identified the retail and hospitality sub-sectors as her preferences, with “overweight” calls.


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“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.

On that, she prefers Ascott Residence Trust (ART) at “buy” with a target price of $1.17, as “we expect it to make a faster recovery from its 74% exposure to countries with large domestic markets”.

For the office and industrial sub-sectors, Ong has given them “neutral” calls due to lacklustre demand and downsizing for the former, and muted leasing of light industrial factory space for the latter.

Her picks for the respective sub-sectors are Manulife US REIT at “buy” with a target price of 84 US cents and Ascendas REIT, “accumulate” with a target price of $3.73.


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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.

“Since 2013, S-REITs outperformed the STI once the 10- year yields stabilised. We believe this is due to the sector’s increasing relevance in the Singapore market given their larger market caps, strong and consistent growth profiles and attractive relative spreads. The wider yield spreads (vs 10-year bonds) offered by the S-REITs of around 4.0% since 2013 (vs <2.0% from 2005-2010) has provided the sector with more buffer which should maintain firm investor interest in the sector,” they add.

To DBS’s Tan and Lai, they favour Mapletree Commercial Trust (MCT), Frasers Centrepoint Trust (FCT), CapitaLand Integrated Commercial Trust (CICT) and Lendlease Global Commercial REIT (LREIT).

“We also like logistics players – Mapletree Logistics Trust (MLT), Frasers Logistics & Commercial Trust (FLCT) and Ascendas REIT – for its attractive pipeline,” they add.

“Hospitality S-REITs such as Ascott Residence Trust (ART) or CDL Hospitality Trusts (CDLHT) are our medium-term picks as travel returns.”