Value emerges for retail S-Reits: Morningstar

FOR long-term investors willing to look beyond the novel coronavirus outbreak, value has emerged in Singapore retail real estate investment trusts (Reits) with attractive dividend yields, according to a report by Morningstar Equity Research. 

Following an estimated 30 per cent decline in unit prices year-to-date as at April 15, Morningstar sees value emerging in three retail-exposed Reits, namely CapitaLand Mall Trust (CMT), Suntec Reit, and Frasers Centrepoint Trust (FCT). 

"In the near term, uncertainties remain as the duration of the coronavirus outbreak is unknown. However, in the long term, we expect distribution per unit (DPU) growth to be underpinned by population growth, a growing middle-income class, improving consumer sentiment, growth in the tourism industry and favourable supply-demand dynamics," wrote Morningstar equity analyst, Ken Foong. 

Among the three picks, Morningstar favours CMT as it views the Reit's merger with CapitaLand Commercial Trust as a positive, resulting in it being more resilient through market cycles and improving its ability to take on integrated developments, where commercial development is trending towards, it said. 

Separately, Mr Foong said he also expects Suntec Reit to be more resilient through the market cycle due to its "diversified nature" comprising retail, convention centre and office segments. 

As for FCT, Morningstar believes that population growth along with the Reit's large residential catchment area could underpin long-term DPU growth, given its exposure to suburban malls.

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In general, Morningstar does not expect Reits to cut their payout ratio to below 90 per cent. 

"However, there are risks to DPU in the near term, especially for retail-exposed Reits, and they could delay distribution to conserve cash," according to the report.