Our Top Singapore REIT Pick

Which Singapore REIT is better geared for the reopening and inflation environment?

Kate Lin 28.07.2022
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Kate Lin: Welcome to Morningstar. Singapore starts allowing tourists from other countries to enter without quarantine. In addition to a reopening theme there are other secular drivers that may bolster the local property market. Which Singapore REITs are better geared for the current environment, and which is our top pick for now? Xavier Lee, our equity analyst, is here today.

Hi, Xavier. Certain types of REITs are benefiting from recovery momentum or secular drivers. Can you tell us some examples?

Xavier Lee: Hi, Kate. The lifting of COVID-19 restrictions as well as the relaxation of border controls in Singapore and across the rest of the world have benefited commercial, retail and hospitality REITs the most. For office, we expect to see a 60% return to the office, translating to a three-day work from office. So, I believe we are firmly past the stage of companies looking to right-size their office space requirements, and I expect rental growth in the CBD to be supported by limited supply of office completion as well as recovery in leasing demand.

As for retail, I think the worst is clearly over with retail sales surging 17.8% year-on-year on the back of a low base for the month of May. Many retail REITs are also beginning to report tenant sales that exceeded its pre-pandemic levels, which we believe will help to support rental growth in the coming quarters.

Lin: The comeback of tourism is another exciting change for Singapore market. What is the outlook for relevant REITs you are covering?

Lee: For the sample hospitality sector, we are starting to see a good recovery in visitor arrivals. This has helped to push occupancy rates to about 71.3% in May, up from 65.6% in April. With average room rates going up as well, total room revenue more than doubled to $69 million registered last year. But there's still plenty of room to catch up with the pre-pandemic level of $325 million. With China, a key source of tourist arrivals for sample pre-pandemic they are still maintaining some restrictions on travel. We think that a full recovery for hotels and downtown retail malls that rely on tourist spending can only be achieved in 2023.

Lin: Right. So, with these in mind, what is the top REIT choice in Singapore right now?

Lee: Our top pick for Singapore is CapitaLand Integrated Commercial Trust or CICT for its diversified portfolio of high-quality retail and office assets. As I shared earlier, the outlook for office is positive, and we think that rents will recover strongly and flow through as positive rental reversions for CICT's office assets. On the retail front, we expect higher shopper traffic as well as tenant sales as people leave their homes to commute to work and meet up with their friends. This should translate to improving retail leasing sentiment and drive positive rental reversions for CICT's retail malls. Come 2023, we expect a full recovery in tourism to further drive the performance of its downtown malls, helping CICT achieve an average distribution per unit growth of 8% over the next two years.

Lin: Thank you so much, Xavier, for sharing. For Morningstar, I'm Kate Lin.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
CapitaLand Integrated Commercial Trust2.11 SGD-0.47Rating

About Author

Kate Lin

Kate Lin  is a Data Journalist for Morningstar Asia, and is based in Hong Kong

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