Outlook for S-REITs After Removal of COVID Restrictions

Singapore is taking further steps to relax pandemic-related restrictions. How will this reflect on S-REITs? 

Kate Lin, CAIA 24 March, 2022 | 21:24
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Kate Lin: Welcome to Morningstar. Singapore is taking further steps to open its borders and facilitate inbound travel. How will this help boost consumption and how will this reflect on the outlook of various Singapore REITs? We're talking to Xavier Lee, equity analyst at Morningstar. Hello.

Xavier Lee: Hi, Kate. Thank you for having me.

Lin: For the past two years, warehouse and logistics REITs have been playing pretty well in the Singapore market and helped by the robust ecommerce activities. Will this continue in the post-pandemic environment?

Lee: Yeah, COVID-19 has certainly been a boon for logistics REITs over the past two years having accelerated secular trends such as ecommerce penetration in Asia Pacific. So, this in itself boosted leasing demand for logistics warehouse for the purpose of ecommerce fulfillment and distribution. On top of that we're seeing firms shifting its supply chain model from just in case to just in time due to stockpiling requirements. But looking ahead, while we think that demand from stockpiling requirements may taper off post-pandemic, the demand for logistics space will still be robust as it continues to be driven by growth in ecommerce that we think still has a long runway to go. In addition to that, we expect to see growing demand for cold chain storage facilities on the back of the growth in online groceries as the next ecommerce frontier. So, all in all, I would say the outlook remains positive for logistic REITs post the pandemic.

Lin: So, international travelers are slowly returning to Singapore. What should we expect from REITs investing in shopping malls?

Lee: Yes, indeed. In fact, the Singapore government just announced further relaxation of travel restrictions to allow fully vaccinated travelers to enter Singapore quarantine free. That said, I think we're still quite early on this road to travel recovery with the government's goal to restore passenger volumes at the airport to around 50% of pre-COVID levels from the current 18%. So, for 2022, we still expect suburban malls that rely on domestic spending to continue outperforming downtown malls that rely more on tourist spending. But from 2023 onwards, we expect downtown malls to recover strongly on the back of a significant recovery in tourism and outperform suburban malls.

Lin: Right. So, for these two types of REITs, what is your dividend outlook at the moment and which ones are highly rated?

Lee: Overall, we expect logistics and retail REITs to register good distribution for unique growth in the coming year. One of the names that we especially like is CapitaLand Integrated Commercial Trust, or CICT for short, for its diversified portfolio of quality retail and office assets. As more people leave their homes following the gradual lifting of COVID-19 restrictions, we expect CICT's portfolio of suburban malls that are located next to key transport hubs in Singapore to benefit from the recovery in commuter activity, which should also translate to higher shopper traffic and tenant sales. This will be followed by the recovery in its downtown malls in 2023 on the back of the tourism recovery, helping them to achieve an average distribution per unit growth of 7% over the next two years. As for logistics REITs, we think that value can be found in Mapletree Logistics Trust, which is a pureplay logistics REIT under our coverage. On top of the positive outlook on the sector, as we mentioned earlier, we also like it for its strong sponsor pipeline, and we think that it can achieve an average distribution per unit growth of 4.7% over the next two years.

Lin: Right. Thank you so much. For Morningstar, I'm Kate Lin.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
CapitaLand Integrated Commercial Trust2.22 SGD0.45Rating
Mapletree Logistics Trust1.62 SGD1.89Rating

About Author

Kate Lin, CAIA

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

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