Phillip stays 'neutral' on S-REITs; prefers office and hospitality sub-sectors
SINGAPORE (June 19): The yield spread of Singapore-listed REITs (S-REITs) declined 39bps to 272bps year to date as of end May, says Phillip Securities Research in its monthly report.
The S-REIT dividend yield was 4.81% as at end May. Three-month SOR eased to 2.05%.
Phillip notes that the S-REIT yield spread is below the -1SD level since the global financial crisis.
However, strong rental growth should offset any adverse effects from rising interest rates – with the 3MSOR still rising despite the Federal Reserve’s recent dovish stance.
“We maintain ‘neutral’ on the S-REITs sector, with selective sub-sector preferences,” says analyst Tara Wong in a Wednesday report.
In May, Eagle Hospitality Trust, a pure-play US upscale select-service hospitality trust, made its Singapore Exchange debut on May 24.
It has forecast an indicative yield of 8.2% for FY2019. Share price is now trading at 70 US cents, a 10.3% discount to IPO issuance price of 78 US cents.
For the retail sub-sector, retail sales -- excluding motor vehicle sales -- declined 2.0% y-o-y in April, dragged down largely by the furniture & household equipment and the computer & telecom equipment sectors. The F&B index was up 3.82% y-o-y -- seasonally adjusted -- in April.
Funan Mall, under CapitaLand Mall Trust, achieved 92% and 98% commitment for its retail and office components, respectively, ahead of its scheduled opening on June 28.
In the area of M&A, CapitaLand and City Developments acquired Liang Court Mall for $400 million.
For the office sub-sector, co-working operators continue to take over more office space. Spaces – owned by IWG -- opened at TripleOne Somerset and Clarke Quay, with plans to open at One Raffles Place and Paya Lebar Quarter.
Still, Wong says the city state being ranked as Asia’s top commercial locations for technology, media and telecommunications (TMT) occupiers, according to a research report by Colliers International.
In the industrial sub-sector, Mapletree Investments could launch two new REITs in the pipeline for the next five years, according to a Bloomberg report.
These could include student housing in the UK and the US, corporate housing in the US, data centres in the US, logistics facilities in Europe and offices in Europe.
Separately, ESR Cayman, through its subsidiaries, had entered into agreements to raise its effective ownership of Sabana REIT to 21.4%.
The hospitality sub-sector saw average RevPAR decline 1.6% y-o-y in April, for both hotel occupancy and average room rate.
The luxury segment was the only segment which recorded growth of 3.4% y-o-y, in April. Visitor arrivals was flat in April.
“We like the commercial and hospitality sub-sectors due to tapering supply after the surge in supply in the prior two to three years,” says Wong, “We are cautious on the retail sub-sector as retail sales and shopper footfall both leave much to be desired.”
