Broker's take: Credit Suisse says S-Reits positioned for retail recovery

RETAIL and hospitality Singapore-listed real estate investment trusts (S-Reits) were the hardest hit by the Covid-19 pandemic and should continue their recovery in 2021, according to Credit Suisse. This comes amid a return to normality for domestic mobility, and a slow improvement for international travel, it said in a sector note on Monday.

"We believe suburban retail has the smoothest path for recovery, while improvement for hospitality is dependent on international travel, which will be fraught with significantly more uncertainty," wrote analysts Nicholas Teh, Louis Chua and Terence Lee.

Credit Suisse has "outperform" recommendations for Frasers Centrepoint Trust (FCT), CapitaLand Integrated Commercial Trust (CICT) and Keppel DC Reit (KDC Reit). It has a target price of S$2.97 for FCT, S$2.60 for CICT and S$3.08 for KDC Reit. The former two counters were cited as beneficiaries of domestic recovery, while KDC Reit is preferred for acquisitions.

Separately, Credit Suisse has downgraded its call on Mapletree Commercial Trust (MCT) to "neutral", with a target price of S$2.26 from S$2.20 previously, as it believes that the market is already pricing in the recovery.

As at 2.09pm on Monday, FCT units were trading at S$2.61, up S$0.01 or 0.4 per cent, while CICT units were trading at S$2.31, up S$0.03 or 1.3 per cent. KDC Reit units gained S$0.01 or 0.4 per cent to S$2.86, while MCT units were flat at S$2.19.

According to Credit Suisse, industrial or data centre Reits will continue to be the focus for acquisitions, given relatively higher cap rates for assets, and low dividend yields facilitating distribution per unit (DPU) accretion. Within the subsector, Credit Suisse believes KDC Reit has the ability to "deliver the highest DPU accretion from acquisitions".

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Outside of industrial or data centre Reits, FCT and MCT have several sponsor assets that can be acquired accretively, though there is no guidance on timing, the analysts wrote.

In addition, key structural trends to watch include work-from-home (WFH), e-commerce, as well as data centres, Credit Suisse noted.

"WFH remains a risk for the office sector with potential reduction of space by tenants, while a structurally higher proportion of the population working from home is a benefit for suburban retail," it said.

E-commerce continues to be a positive for logistics demand, while Credit Suisse is of the view that Singapore will maintain its status as the Asean hub for data centres, with rates supported by the lack of new supply.