SPH REIT, Lendlease Global Commercial REIT (LREIT), AIMS APAC REIT (AA REIT), Keppel Pacific Oak REIT (KORE), ARA LOGOS Logistics Trust and ESR REIT are among some of the list of potential Singapore REITs (S-REITs) to be included in the FTSE EPRA NAREIT, says DBS Group Research.
The index will be conducting its review in September.
The list is based on the estimates of analysts Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong.
“The following S-REITs may qualify for index inclusion in the upcoming September review where we may see increased allocations for these stocks upon announcement in early September,” they write in a July 2 flash note.
In the medium term, the analysts think Mapletree North Asia Commercial Trust (MNACT) may qualify by June 2022.
This is “given that it has just crossed the developed EBITDA threshold in FY2021 and will have to wait another year before being considered as a potential index constituent in the Developed Asia Index”.
The inclusion of the S-REITs in the FTSE EPRA NAREIT index may boost trading and visibility for the sector, which is one of three catalysts for the potential re-rating of S-REITs, say the analysts.
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“More S-REITs and listed developers potentially qualifying for the EPRA NAREIT Developed Asia Index will be positive for the Singapore market given that this index is well followed by institutional investors,” they write.
Furthermore, past inclusions have generally seen a positive impact on their share prices and liquidity for index constituents.
The other catalysts include the re-opening of the Singapore economy as well as international borders, which will be positive for the retail and hospitality sub-sectors.
“The relaxation of dine-in limits to 5 pax per group will be well received by retailers (especially F&B players) and of course investors as this will certainly lift sentiment,” they write.
“The operational outlook for the sector has brightened as we head into 2HFY2021,” they add.
According to the analysts, the same sectors may lead the rebound in mid-July, where the analysts’ top picks – Frasers Centrepoint Trust (FCT) and LREIT – have large exposure to these trades.
On the back of the announcement that Singapore may allow leisure travel to take place at the end of 2021, the hospitality S-REIT subsector may see the light again.
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The opening up of leisure travel will benefit local hoteliers, as the analysts note that Singapore will be one of the earliest Asian countries to tie-up arrangements from the US and European Union.
“What we have observed from the reopening at Maldives and other resort destinations in China, is that RevPAR can spike very quickly to above normalised levels. A first mover advantage is one of the primary reasons for this in our view,” they write.
“Our hotel S-REITs have 40% local exposure, and the UK is our largest foreign market at 16% (by asset value), so this news is positive for the sector overall.”
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