As sentiments in the retail, office and hospitality Singapore REIT (S-REIT) subsectors take yet another hit amid Singapore’s return to Phase 2 (Heightened Alert) measures, DBS Group Research analysts Derek Tan, Rachel Tan, Dale Lai and Geraldine Wong see any downside as an opportunity to buy in.
The new curbs, which begins on July 22, will last till Aug 18. They were re-introduced amid the sharp rise in community cases from the recent KTV and Jurong Fishery Port clusters, just when Singapore had loosened measures on July 19.
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To the team analysts led by Derek Tan, “this will be a painful pill for most, especially the retail and CBD focused S-REITs”.
“In fact, a re-opening in late 3QFY2021 may also be more gradual than anticipated, meaning that 2021 earnings momentum will likely be slower,” writes the team in a July 21 report.
That said, while investors tend to sell their positions in the retail, office and hospitality sectors in the immediate term, the team notes that any downside has proven to be short lived.
On the retail S-REIT subsector, the team says it estimates a 6% to 10% cut in earnings estimates following the upcoming results season.
This, however, does not factor in any potential rebates that may be disbursed by the government.
“In our previous report, we had highlighted that the landlords will likely be shouldering up to two weeks of rental assistance for Phase 2 (Heightened Alert) in May/June 2021, we now see rebates increasing to up to four to six weeks,” writes the team.
Among the retail names, suburban-centred names like Frasers Centrepoint Trust (FCT) remains the most resilient.
Among the S-REIT sector, the prime office, industrial and healthcare REITs are seen as “safe harbours” by the team.
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Office REITs like Keppel REIT (KREIT) and Mapletree Commercial Trust (MCT) are “better positioned” to attract new economy tech firms while selected industrial S-REITs like Mapletree Logistics Trust (MLT), Mapletree Industrial Trust (MINT), ARA LOGOS Logistics Trust and AIMS APAC REIT (AA REIT), as well as healthcare REITs like Parkway Life Trust will see clarity in their earnings trajectory.
As at 2.21pm, the benchmark Straits Times Index (STI) is trading 40.20 points higher or 1.3% up at 3,159.20.
Photo: Bloomberg
