S-REITs Weekly - UOB Kay Hian 2020-04-13: Rebounded 12.2% Last Week On Investors’ Optimism

KEPPEL REIT (SGX:K71U) FAR EAST HOSPITALITY TRUST (SGX:Q5T)

S-REITs Weekly - Rebounded 12.2% Last Week On Investors’ Optimism

S-REITs rebounded 12.2% last week on investors’ optimism that the COVID-19 pandemic has peaked in the US. Hospitality REITs, such as Frasers Hospitality Trust (SGX:ACV), ARA US Hospitality Trust (SGX:XZL), CDL Hospitality Trusts (SGX:J85) and Far East Hospitality Trust (SGX:Q5T), led the gainers. See S-REITs share price performance.

Upgrade Keppel REIT (SGX:K71U) to BUY due to positive reversions in 2020 and 2021, contributions from 311 Spencer Street kicking in starting 2Q20 and minimal exposure to co-working operators.

UOBKH S-REIT Index gained 12.2% to 213.5 last week. Investors adopted a risk-on approach, on optimism that the COVID-19 pandemic has peaked in the US. They snapped up units in sub-sectors worst hit by the COVID-19 outbreak, such as Hospitality REITs, which are high-beta plays on the eventual recovery.
Top outperformer: Those worst hit enjoyed the biggest bounce. Hospitality REITs Frasers Hospitality Trust (SGX:ACV), ARA US Hospitality Trust (SGX:XZL), CDL Hospitality Trusts (SGX:J85) and Far East Hospitality Trust (SGX:Q5T) were key outperformers with gains of 23.4%, 19.0%, 18.7% and 17.9% respectively. Mapletree Logistics Trust (SGX:M44U), a beneficiary of growth in e-commerce, gained 15.4%.
Top underperformer: With high-beta S-REITs stealing the limelight, defensive REITs Parkway Life REIT (SGX:C2PU) and United Hampshire US REIT (SGX:ODBU) lost 1.9% and 0.9% respectively.
See S-REITs share price performance.

Singapore portfolio to maintain positive reversions in 2020 and 2021. Management disclosed that the average rents for expiring leases are S$9.69psf pm for 2020, S$9.74psf pm for 2021 and S$10.20psf pm for 2022, which are below current market rent of S$11.55psf pm for Grade-A office space within core CBD.
311 Spencer Street, Melbourne to start contributing in 2Q20. The 40-storey freehold Grade-A office building will be leased to Victoria Police for 30 years commencing in 2Q20. The lease has fixed annual escalation of 2-4% per year. Management expects 311 Spencer Street to generate NPI yield of 6.4% on development cost of S$362.4m.
Minimal exposure to co-working. Co-working operators accounted for 0.8% of Keppel REIT (SGX:K71U)’s NLA and 0.7% of Gross Rental Income.
See report:
- Singapore Office REITs - UOB Kayh Hian 2020-04-09: Sturdy & Resilient.
- Singapore Retail REITs - UOB Kay Hian 2020-04-06: Setback From Temporary Relief Measures.
See peer comparison table in attached PDF report.