Singapore REITs - DBS Research 2021-05-17: Survival Of The Fittest

FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) ARA LOGOS LOGISTICS TRUST (SGX:K2LU) MAPLETREE LOGISTICS TRUST (SGX:M44U)

Singapore REITs - Survival Of The Fittest

Near-term pain from stricter communal measures for the long-term good of the community.
S-REIT share prices have reacted and are now close to the peak-to-trough declines back in 2H20 (Phase2).
Buy on further dips; investors should position to gather REITs within the structural growth themes of logistics, suburban retail and grade A offices.

The introduction of stricter measures to effectively curb the community spread of COVID-19 will likely bring communal gatherings to a near-term standstill. In fact, we believe that the recent measures targeting social gatherings appear to be stricter than those implemented back in phase 2 (Jun’20-Dec’20) and should be effective.

S-REIT share prices have de-rated in response. That said, while average share prices are ~15% higher (for office, retail and hospitality S-REITs) compared to the lows in Oct’20, we believe that year-to-date declines of ~8-9% are within ~3% of the declines (peak-to-trough) seen back in Phase 2.
With average sector yields at ~6.0% (yield spread of 4.5% vs 10-year bond), we believe that believe that prices are approaching a near term bottom and should see support soon

We are net-buyers in the recent sell-off and seek resilient performers and those that remain within the structural growth themes of industrial (logistics, data centres) which are undisrupted post COVID (Frasers Logistics & Commercial Trust (SGX:BUOU), Mapletree Logistics Trust (SGX:M44U), ARA LOGOS Logistics Trust (SGX:K2LU)) while suburban retail landlord (Frasers Centrepoint Trust (SGX:J69U)) has proven to be resilient given its exposure to essential trades and benefit from the work-from-home (WFH) trend.
We believe that concerns on office landlords (Mapletree Commercial Trust (SGX:N2IU), Keppel REIT (SGX:K71U)) are overdone as occupiers are unlikely to further tweak their operational layout with most major of the space rationalization unveiled.
Within hospitality, while our optimism is doused somewhat given expected delays in Air Travel Bubble (ATB), we seek shelter in Far East Hospitality Trust (SGX:Q5T) for the high revenue support from its master lease, offering a ~4.0% yield.

Our views are premised on a short and sharp “lockdown” curbing the effective community spread.
Potential downside risk if the
1. economy double dip into a recession in 2021, resulting in widespread business closures,
2. mandatory mall closures which result in landlords needing to provide extended reliefs to their tenants.

Derek TAN DBS Group Research | Rachel TAN DBS Research | Dale LAI DBS Research | https://www.dbsvickers.com/ 2021-05-17

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