Singapore REITs Monthly - Phillip Securities 2020-07-14: Ready For The Next Phase

Singapore REITs Monthly - Phillip Securities Research | SGinvestors.io MAPLETREE LOGISTICS TRUST (SGX:M44U) CROMWELL EUROPEAN REIT (SGX:CNNU)

Singapore REITs Monthly - Ready For The Next Phase

  • FTSE S-REIT Index gained +8.2% m-o-m in May. The largest gains were observed from the healthcare and industrial subsector (+0.1%) while weakest performance was in the hospitality subsector (-9.3%).
  • Sector yield spread of 361bps over the benchmark 10-year SGS (10YSGS) yield was at the +0.19 standard deviation (SD) level.
  • The quarter ending June 2020 will register the full impact from the containment measures, but a recovery is underway.
  • Maintain OVERWEIGHT on SREITs sector with sub-sector preferences in Office and Industrial portfolios.


Phase 2 of reopening will relieve pressure on the Hospitality and Retail sectors

  • Singapore entered Phase 2 on 19 June 2020, with retail businesses allowed to reopen and F&B operators allowed to accommodate dine-in customers. Central malls which have suffered a double whammy from a telecommuting workforce and absence of international visitors have benefitted from the resumption of retail trade.
  • We understand from SPH REIT (SGX:SK6U)’s business update that close to 100% of tenants in Paragon, located along the Orchard Road shopping belt, are trading, with a handful choosing not to trade as they expect to benefit from the enhanced rental relief for SMEs. See SPH REIT Announcements.
  • As Singapore progresses further into Phase 2 of reopening, more trade categories and activities are allowed to resume business, subject to various safe management measures. Cinemas are allowed to open from 13 July, with up to 50 patrons while hotels may apply to reopen for staycation bookings from 3 July.
  • Pent-up travel demand and occasion-driven staycationers (anniversaries, birthday celebrations) will help to fill the mid, upscale and luxury vacancies, however, we are expecting hoteliers to give significant discounts to achieve the sweet spot. Nonetheless, the reopening for staycation booking is still positive for the hospitality sector.


Maintain OVERWEIGHT on the S-REITs sector

  • We continue to view REITs as a stable yield investment. We believe that SREITs may emerge stronger will more future-ready portfolios, resulting in a re-rating of the SREITs sector due to:
    1. Acceptance of higher gearing levels will benefit REITs
    2. COVID-19 accelerated phasing-in of future trends, creating opportunities for landlords
    3. Tried and tested – REITs remain an attractive yield play
    4. A better entry price – S-REIT yield spread at the -0.6 SD level
    5. Recovery in prices and low interest rates presents conducive environment for acquisition

Top-down view (unchanged)

  • We like the Commercial and Industrial sub-sectors due to tapering office supply after the surge in supply in the prior two to three years, and the AEI and redevelopment opportunities for the Industrial sector. The tenants in these two sectors are also less affected by the COVID-19 outbreak.
  • We are cautious on the Hospitality and Retail sub-sector due softer tourism sentiment and retail outlook, exacerbated by lingering fears of another wave of COVID-19 outbreak.

Tactical bottom-up view (unchanged)

  • We continue to favour REITs with stability, diversification as well as near-term growth catalyst. REITs that can better weather through the weaker leasing environment and structural shifts are those with:
    1. Well-distributed lease expiries;
    2. High-interest coverage;
    3. Long weighted average debt to maturity; and
    4. percentage of guaranteed revenue through “fixed” or “stable” leases.

See attached PDF report for S-REITs peer comparison table.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2020-07-14
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998