Singapore REITs Monthly - Phillip Securities 2021-08-24: Recovery In Progress


Singapore REITs Monthly - Recovery In Progress

  • FTSE REIT Index’s recovery lagged the STI and FTSE Real Estate Developer Index year-to-date. Sector’s dividend yield spread of 283bps at -0.9SD of 10-year historical average.
  • Leasing remains challenging, although improving q-o-q. Portfolio reconstitution, redevelopment and AEI could help DPUs recover faster.
  • Remain OVERWEIGHT with selective preferences. Catalysts expected from pick-up in economy and portfolio reconstitution. REITS under coverage expected to deliver FY21e DPU yields of 3.9-7.9%. Prefer Industrial and Retail. Top picks are Frasers Centrepoint Trust (SGX:J69U) and Ascendas REIT (SGX:A17U).


  • Leasing remains competitive, although leasing enquiries have increased. S-REITs have been active in transactions, with many S-REITs picking up assets over the last six months. Portfolio reconstitution should keep portfolios future-ready while disbursements of divestment gains and contributions from acquisitions could help DPUs recover faster.
  • Several REITs are exploring redevelopment and AEIs due to lower opportunity costs in this softer leasing environment. These efforts should result in faster later-period DPU growth.
  • Commercial landlords are mandated to match the government’s 2-week rental support for SME retail tenants during 22 July-18 August 2021. The mandatory relief in 2021 is shorter in duration than 2020 and limited to retail tenants; it was extended to industrial and commercial tenants in 2020. Commercial and industrial tenants’ retail exposure is below 20%. While some S-REITs have offered relief above the mandated amount, the quantum is expected to be more limited as most retail leases have been restructured or signed with lower, annually escalating base rents.

Office REITs

  • Leasing m-o-mentum continued into 2Q21, despite Phase 2 Heightened Alert. Renewals formed the bulk of leases signed as tenants rolled over their expiring leases. The rental index grew 1.3% q-o-q while Grade A rents reported by CBRE held steady at S$10.50/psf. Net absorptions in 1H21 in the CBD wee -0.8mn sq ft vs 0.6mn sq ft in 2020, owing to non-renewals and downsizing.
  • Occupancy for the majority of the office REITs dipped due to non-renewals. This was in keeping with the industry’s occupancy, which slid 0.7ppt q-o-q to 87.4%. Still, Singapore and US REITs managed to secure positive reversions in 1H21.

Industrial REITs

  • Industrial rents and occupancy grew for the fifth consecutive quarter.
    • Occupancy improved 0.1ppt to 90.1% q-o-q and was 0.7ppt higher y-o-y. This was lifted by factory occupancy (+0.1ppt). Occupancy at warehouses and business parks slid 0.1ppt and 0.3ppt respectively.
    • Industrial rents grew 0.5/0.3ppt q-o-q/YoY, with improvements in factory and warehouse rents. Business park rents were unchanged q-o-q and down just 0.9ppt y-o-y.

Retail REITs

  • The retail market is finding its footing. Year-to-June net absorptions were 12,000 sq m much better than 2020’s -72,000 sq m net absorptions. Occupancy was unchanged q-o-q while the rental index slid 0.5%. Suburban rents halted their decline although central rents dipped 1.4% q-o-q. y-o-y, suburban and central rents were down 11.9% and 14.2% respectively.
  • Retail REITs reported that signing rents have improved, with reversions less negative than in the preceding quarter. Central rent reversions were in the negative low teens while suburban rental reversions were in the negative low single digits, compared with negative mid-single digit and negative mid-teens earlier quarters.

Hospitality REITs

  • RevPAR remained weighed down by an absence of international visitors. It was 57% below July 2020 levels.
  • Several Singapore hotels owned by S-REITs have been rebooked for quarantine as the government ramped up its quarantine facilities to cope with COVID-19 cases. According to the Ministry of National Development, more than 90 hotels were booked as of August 2021, up from 70 in May 2021.
  • Singapore’s accelerated vaccine programme has borne fruit, with 82% of its population vaccinated with at least one dose of the vaccine and 78% fully vaccinated as of 21 August. This has given the government the confidence to reopen borders gradually, starting with differentiated, risk-based border measures.



  • S-REITs have been active on the transaction front. Portfolio reconstitution should strengthen portfolios while disbursements of divestment gains and contributions from acquisitions could help DPUs recover faster. Several REITs are exploring redevelopment and AEIs due to lower opportunity costs in this softer leasing environment. These efforts should result in faster later-period DPU growth. S-REITs under over coverage are expected to deliver 3.9-7.9% FY21e DPU yields.
  • As Bloomberg consensus forecasts that 10YSGS (10-year Singapore Government Securties) yields will remain below 2.0% from 2021 to 2022, before crossing the 2.0% level in 2023. S-REITs’ DPUs should stay in excess of interest-rate growth, providing upside for S-REITs.

Sub-sector preferences: Industrial and Retail

  • We believe the industrial sub-sector will be resilient. Industrial REITs have been the most active in acquisitions, owing to an early recovery in their share prices. We think industrial REITs will continue to lead the pack in acquisitions and redevelopment/AEIs for the rest of 2021.
  • Continued border closures and acclimatation to online shopping have returned the RSI to pre-pandemic levels. Barring a second circuit breaker and closure of malls, we think the earnings impact on retail REITs will be marginal. Vacancy risks may be mitigated by supportive supply conditions.
  • See the S-REITs peer comparison table in report attached below.


  • Suburban malls should stay resilient regardless of the default work mode. Suburban malls are frequently located near household catchments and transportation nodes. Higher daytime populations from work-from-home arrangements should be converted to transient footfall even when work-from-office resumes, spurring incidental spending. Central malls could receive a lift when international borders eventually open. Dominant central and suburban malls which are well-located and well-managed will likely be prioritised amid retail consolidation and expansion.
  • Prefer Frasers Centrepoint Trust (SGX:J69U) for its exposure to resilient, necessity-driven spending at suburban malls and growth in suburban catchments.


  • Lacklustre demand and downsizing will likely result in office oversupply in the near term, despite mitigation from office stock taken offline for redevelopment. Rents could remain under pressure. Still, the long-term outlook of the office market is optimistic as Singapore remains one of the top cities for the location of regional headquarters. This is attributable to its political and operational stability, business-friendly policies and educated workforce.
  • Prefer Prime US REIT (SGX:OXMU) for its higher tenant exposure to New Economy STEM/TAMI sectors.

Industrial REITs (OVERWEIGHT).

  • The outlook for data centres, hi-spec and business parks remains favourable. These asset classes are supported by a growing technology sector and low supply under construction. Warehouses have been benefitting from higher demand from logistics players, backed by e-commerce growth. Leasing of light industrial factory space may be muted as global demand is still on the mend. The outlook for factory assets remains challenging given considerable new supply.
  • Top pick is Ascendas REIT (SGX:A17U) for its diversified portfolio, which is positioned to capture demand from New Economy sectors.

Hospitality REITs (NEUTRAL).

  • The hospitality sector faces a long road to recovery. We estimate that the industry may only return to pre-COVID levels in 2023-24, in line with the Singapore Tourism Board’s 3-5-year recovery timeline. With the highest vaccination rates globally, Singapore could be the first to benefit from travel channels as countries progress in their vaccination programmes. Economies with sizeable domestic demand such as China, the UK, France, Australia and the US will be the first to recover, in our view.
  • While business travel is likely to be less frequent, as companies hold business meetings virtually to save costs, some MICE demand is expected to return. This is because we think certain aspects of business engagement and networking cannot be replicated by virtual meetings.
  • Prefer Ascott Residence Trust (SGX:HMN) as we expect it to make a faster recovery from its 74% exposure to countries with large domestic markets and growth in stable, long-stay assets.
  • See the report attached below for complete analysis.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-24
SGX Stock Analyst Report BUY MAINTAIN BUY 2.870 SAME 2.870