PhillipCapital research analyst Natalie Ong has maintained her “overweight” recommendation for Singapore REITs (S-REITs) even as the FTSE S-REIT Index underperformed compared to the Straits Times Index (STI) and the Real Estate Developer Index.
Within the sector, the hospitality segment showed the best performance with a 16.0% growth, lifted by news of vaccine progress, while the industrial segment fared the worst with a 2.2% decline.
The sector spread yield of 338 basis points over the benchmark 10-year SGS was -0.1 standard deviation (SD).
That said, Ong’s recommendation comes on the back of catalysts expected from acquisitions fuelled by the conducive interest rate environment.
“[The acquisition momentum continues, with Ascendas REIT, CapitaLand Retail China Trust, Mapletree Logistics Trust, Suntec REIT and ARA LOGOS Logistics Trust announcing acquisitions in the last one month,” she says.
“Leasing remained challenging across the sectors as companies held off expansion and relocation. Renewals are expected to form the bulk of leases as businesses try to preserve capital and save on relocation,” she adds.
With that, she has identified her sub-sector preferences as hospitality (upgraded), office and industrial.
“As financial institutions are the top three occupiers of office space, we think this move towards flexible work arrangements will set in motion more aggressive rightsizing of space in the mid-term,” Ong notes, for the office sub-sector.
For more stories about where the money flows, click here for our Capital section
On the industrial sub-sector, Ong says that “a continued moratorium on data centres is expected to lead to higher rents in the coming years”.
“Leasing of factory space may not fare as well as the global demand recovery is nascent while demand for hi-tech space remains supported by growth in electronics demand,” she says.
For retail, Ong says demand for retail space may be affected as multinational fast-fashion chains such as H&M, Gap and Forever 21 seek to slash their global store counts.
Within the hospitality sub-sector, hotels that are expected to see demands for staycations are luxury or upscale, or resort-like accommodations, she notes.
“With bans on leisure travel likely to remain in place towards the festive season, hoteliers are anticipating a spike in staycation demand,” she says.
To this end, Ong has identified her top picks among S-REITs as Manulife US REIT at “buy” with a target price of 92 US cents ($1.23); Frasers Centrepoint Trust at “accumulate” with a target price of $2.79; and Ascendas REIT “buy” with a target price of $3.61.
As at 4.16pm, units in Manulife US REIT, Frasers Centrepoint Trust and Ascendas REIT are trading at 75 US cents, $2.33 and $3.03 respectively.
