S-REITs Bi-Weekly Updates (1-15 Jul 22)
S-REITs underperformed the STI by 0.7% in the first two weeks of July due to concerns over elevated inflation and uncertainties emanating from the Russia-Ukraine War. The sector is resilient due to its defensive characteristics and stable cash flows. The underlying real estate also serves as a hedge against inflation. Focus on recovery from reopening plays. BUY ART (Target: S$1.31), FCT (Target: S$2.74), FEHT (Target: S$0.77) and LREIT (Target: S$0.95). Maintain OVERWEIGHT.
WHAT HAPPENED IN THE LAST TWO WEEKS
• New wave of sub-variants BA.4 and BA.5. The seven-day moving average for local COVID19 cases increased to 9,121 as of 18 Jul 22. 99.7% of the new cases are asymptomatic or have mild symptoms. There are only 16 COVID-19 patients warded in adult ICU beds. The Week on Week Infection Ratio has moderated to 1.08. The Ministry of Health has tightened safe management measures for visitors at hospital wards and residential care homes to protect healthcare capacity and vulnerable patients and residents.
• MCT has embarked on a preferential offering on the basis of 306 preferential offering units for every 1,000 existing MCT units at an issue price of S$2.0039.
• Office properties setting new benchmark prices in Singapore. One floor at Suntec City Tower 2 with 9,989sf of office space is on the market with indicative guided price of S$36m or S$3,600psf. The 30th floor on the same building with 11,743sf of office space was sold at a record-breaking 3,300psf last month.
• The FSTREI corrected 0.8% in the past two weeks, underperforming the STI that lost 0.1%. Yield for 10-year Singapore government bonds receded 17bp to 2.81% during the first two weeks of July. However, market sentiment was spooked as US CPI deteriorated 0.5ppt mom to 9.1% in Jun 22.
• Top outperformer: We saw mild recovery in S-REITs with exposure to New Economy asset classes. Logistics REITs MLT and FLT gained 1.8% and 0.8% respectively. Industrial REITs AAREIT and AREIT gained 0.7%. Retail REIT LREIT increased 1.3%.
• Top underperformer: Diversified REITs CICT, SUN and MCT lost 3.2%, 3.1% and 2.7% respectively. DCREIT declined 2.6% due to negative impact from higher interest rates.
