Following the introduction of tighter measures to curb social gatherings, the team of analysts at DBS Group Research say they expect to see increased volatility in the trading of S-REITs that are dependent on the re-opening of the economy in the near term.

To Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong, investors have been positioning themselves in recovery plays such as retail S-REITs, office S-REIT, as well as hospitality S-REITs, which have been performing well year-to-date (y-t-d), registering positive returns of between 4% to 8%.

However, in the immediate term, the analysts expect these S-REITs to underperform, but do not expect the sector to re-visit the lows seen in March 2020.

“The reason is that the government and the community are now better prepared to work together to curb the community spread and thus financial impact to landlords will likely be marginal (if any),” write the analysts in a May 3 flash note.

“Within the retail space, we anticipate that S-REITs with a focus on more discretionary trades ([such as] SPH REIT, Starhill Global REIT, Lendlease REIT, Mapletree Commercial Trust) may see more near term volatility,” they add, with the only exception being Frasers Centrepoint Trust (FCT).


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“For Frasers Centrepoint Trust, while the stock price may drop together with its retail peers, it should be more resilient given its focus on more essential trades and as a beneficiary of the structural change in WFH trend as more workers may patronize the malls in the weekdays,” they say.

Within office-focused S-REITs, the analysts believe that Keppel REIT (K-REIT), with its pure office focus, should see the least downside given positive distribution per unit (DPU) momentum from its recent acquisitions.

The analysts also see rotational interest in industrial S-REITs, which have underperformed y-t-d, in the immediate term.

As such, the team has kept its preference for logistics-focused names such as Mapletree Logistics Trust (MLT) and Frasers Logistics & Commercial Trust (FLCT).

Earnings of Mapletree Industrial Trust (MINT) and other large-cap industrial S-REITs “may surprise on the upside”.


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Within the hospitality S-REITs subsector, the analysts say any downside risk may be mitigated by the possible extension of the government block-booking hotels for quarantine purposes, which provides positive cashflow for the hotels in Singapore.

“While staycation demand in the near term may fall in the immediate term, we expect overall impact on earnings to be marginal,” they write.