S-REITs Bi-Weekly Updates (1-15 Aug 22)
S-REITs suffered a mild decline but underperformed the STI by 1.8% in the first two weeks of August. Inflation has moderated with US CPI easing 0.6ppt mom to 8.5% in Jul 22. S-REITs are resilient due to their defensive characteristics and stable cash flows despite the outlook being clouded by the Russia-Ukraine war and potential economic slowdown. Focus on reopening plays. BUY FCT (Target: S$2.74), FEHT (Target: S$0.83) and LREIT (Target: S$0.96). Maintain OVERWEIGHT.
WHAT HAPPENED IN THE LAST TWO WEEKS
• Perennial and Alibaba to build the tallest building in Singapore. A consortium led by Perennial and Alibaba has proposed to redevelop former AXA Tower at 8 Shenton Way (opposite Tanjong Pagar MRT station) into a mixed-use integrated development. The Urban Redevelopment Authority has approved a height of 305m for the 63-storey building, the highest that the authorities have granted. The approved GFA of 1.6m sf includes 25% additional GFA of 310,350sf granted under the CBD Incentive Scheme. Offices are expected to make up slightly more than half of the GFA. It also has a retail podium, an all-suite hotel and 215 apartments for sale. The redevelopment is a prime example of the government’s effort to create more buzz downtown, which has indirectly led to the depletion of office space within core CBD.
• FSTREI corrected 0.4% in the past two weeks, underperforming the STI that gained 1.4%. Yield for 10-year Singapore government bonds was stable at 2.67% during the first two weeks of August although US CPI eased 0.6ppt mom to 8.5% in Jul 22.
• Top outperformer: CERT gained 6.0% with a steady financial performance as 1H22 DPU grew 2.3% yoy to 8.695 € cents. MPACT gained 2.1% as Festival Walk in Hong Kong benefits from the reduction of the quarantine period for inbound travellers to three days. Logistics REITs MLT and EREIT gained 2.3% and 1.2% respectively. DCREIT rose 1.7% in anticipation of the impending acquisition of data centres.
• Top underperformer: US REITs MUST, PRIME and KORE lost 6.9%, 5.0% and 3.6% respectively. CDREIT and OUECT, which have exposure to the hospitality sector, declined 3.0% and 2.6% respectively.
