Singapore’s stock market seems to have caught the Covid-19 bug with the benchmark Straits Times Index (STI) falling 1.4% to 2,534.6 points last week.

This follows weaker economic sentiment, softness in the labour market, record-low interest rates and for several companies on the Singapore Exchange, lower dividend yields.

However, Real Estate Investment Trusts (REITs) and business trusts are expected to remain promising investment options as they “maintain dividend visibility in guidance ranges supported by well diversified portfolios and longer leases,” according to Maybank Kim Eng (MKE) analysts Thilan Wickramasinghe, Chua Su Tye and Lai Gene Lih.

Particularly, the analysts point out Cromwell European REIT (CE REIT) and Prime US REIT (PRIME) for their diversified tenant bases comprising the government, MNCs and large corporates. 

Several of these companies also focus on the technology sector – which has been growing exponentially since the Covid-19 pandemic – through facilities such as data centres that are looking to expend.

“Divestments and low gearing levels provide both with opportunities for acquisitions – especially in high growth cities and sectors,” MKE’s analysts elaborate.

Specifically, CE REIT’s sponsor –Australian-listed Cromwell Property Group – announced a strategic tie-up with software company Stratus to invest and manage the rollout of a data centre property platform across Europe and Asia Pacific.

This is in line with the REIT’s goal to acquire logistics assets with a potential entry into data centres in Germany and neighbouring countries. 

CE REIT owns 95 primarily freehold properties in seven European countries, giving it a net lettable area of 1.4 square metres. As at end-June, the REIT was valued at €2.1 billion ($3.4 billion).

Over in the US, PRIME owns 12 Class A office buildings across 10 markets, giving it a net lettable area of 3.9 square feet. Collectively, these gave it a valuation of US$1.4 billion ($1.9 billion).

PRIME’s leasing activity has gained traction with the addition of 82.5 square feet in 1H20 ended June and 36,000 square feet after that through positive reversions.

For instance, a +8.5% rental reversion was achieved on long-term leases with over 60% of renewed by existing tenants. MKE’s analysts predict “rental reversions should stay positive, with its portfolio in-place rents at 7.5% below asking rents”.

Aside from CE REIT and PRIME, MKE’s analysts have their eyes on Keppel Infrastructure Trust (KIT) for its diversification across business and assets. 

In particular, they like it for its focus on essential products and services which provides it with “strong, defensible cash flows despite the current macroeconomic uncertainty”.

With an AUM (Assets Under Management) of $5.0 billion as at end June MKE’s analysts write that it is the “largest diversified business trust listed in Singapore”.” Unlike REITs, KIT can invest in all asset classes and has no gearing limits,” they add.

Specifically, businesses and assets in their distribution and networking segment – which provide the essential services of town gas production, telecoms and electricity transmission – accounted for 60.4% of the trust’s distributable cashflows for 1H2020. 

This is a 53.3% year-on-year jump from the year before, MKE’s analysts observe.

Recovering ports 

An interesting bright spot MKE’s analysts point out is ports – particularly, sea ports such as Hong Kong-based Hutchison Port Holdings Trust (HPHT) which has been seeing a turnaround in its throughput volumes.

With operations in the ports of Hong Kong and Shenzhen – the company had faced a decline in operations of 8% and 12% year-on-year respectively in 1H2020 ended June. 

But, it is already starting to see a turnaround as it heads into 2H2020 ending December. “Volumes from the Pearl River delta region is recovering as lockdowns eases and demand for replenishment inventory strengthens,” note MKE’s analysts.

“Management expects a strong August with the overall momentum carrying through in 3Q and 4Q. [They are] seeing an improvement in customer performance so does not believe discounts are required”.

This stems from the confidence that the incremental impact from trade tensions between the US and China “will not be more than what existed half a year ago,” MKE analysts say.

Meanwhile, airports are also seeing some semblance of activity as countries ease their lockdowns and movement control orders. This spells good news for the likes of China Aviation Oil (CAO) and SIA Engineering, according to MKE’s analysts.

One of the largest jet fuel traders in the region, CAO supplies to over 40 international airports and some 30 – 40% of domestic demand on a cost-plus basis.

In detailing the company’s strengths, the analysts say: “CAO has a 30% dividend pay-out policy and will continue to observe this despite the current challenging operating conditions. CAO has a strong balance sheet of USD407m (50% net cash-to-equity, no debt), and is not averse to taking on debt financing if a suitable M&A candidate comes along”.

Back home, SIA Engineering – an aviation maintenance, repair and overhaul company – has been quivering from the heft of the Covid-19 bug. This caused its 1QFY21 revenue/net profit to fall 54%/74% respectively as flight frequencies handled a historic low.

“If not for government support schemes, such as the jobs support scheme, it would have recorded a loss of SGD36.7 million,” MKE analysts estimate. 

Still, the trio see merits in the company from the imposition of safely measures, prudent financial management and positioning itself for a recovery.

“Management believes its strong balance sheet (cash balance of SGD562.6 million and little debt) is sufficient to help SIAEC weather the COVID-19 pandemic,” they observe.

“When flights resume, segments such as line maintenance are expected to recover the fastest, followed by other segments”.