FCT, KReit, MCT among safer Reit options amid return to Heightened Alert: DBS

FRASERS Centrepoint Trust (FCT) J69U, Keppel Reit (KReit) K71U and Mapletree Commercial Trust (MCT) N2IU are among the preferred Singapore real estate investment trust (S-Reit) picks of DBS, as the country returns to Phase 2 (Heightened Alert) in a bid to control the spread of Covid-19.

The brokerage has also recommended several industrial Reits as "safe harbours".

On Tuesday, Singapore's Covid-19 taskforce reinstated a ban on dining at food and beverage outlets. These F&B players will only be allowed to offer takeaways and deliveries.

Social gatherings outside the home will also be limited to group sizes of two people. These new restrictions will last for about a month.

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DBS expects the restrictions will lead to a 6 to 10 per cent cut in earnings estimates for retail Reits, which may have to grant rental rebates to their F&B tenants.

"With restaurants now possibly facing up to two months of not having dine-in customers, we fear that some restaurants may be forced to throw in the towel," the brokerage said in a report dated Wednesday.

But DBS continues to like FCT, which is exposed to the "more resilient essential tenant trades". Most of FCT's malls are located in the suburban parts of Singapore, and tend to be frequented by shoppers in need of groceries or other essentials.

DBS has a "buy" call on FCT and a target price of S$3, which is 25 per cent above the trust's close on Wednesday at S$2.40.

Meanwhile, an extension of the current work-from-home arrangements could affect office leasing momentum.

But DBS is positive on the outlook for KReit and MCT as it sees them as "better positioned to attract new economy tech firms".

It has "buy" calls on both with target prices of S$1.40 and S$2.25, respectively. Units of KReit closed Wednesday at S$1.19 while MCT closed at S$2.12.

Within the Reit space in general, DBS said industrial Reits have the "clearest growth trajectory" just now, as their tenants are least likely to be affected by Covid-related restrictions.

The brokerage sees warehouses and business parks leading the recovery, and it has "buy" calls on Mapletree Logistics Trust M44U (target price S$2.35, close on Wednesday S$2.08), Mapletree Industrial Trust ME8U (target price S$3.25, close on Wednesday S$2.88), Ara Logos Logistics Trust K2LU (target price S$0.85, close on Wednesday S$0.87) and Aims Apac Reit O5RU (target price S$1.60, close on Wednesday S$1.57).

DBS also highlighted the healthcare-focused Parkway Life Reit C2PU (PLife Reit) for its resilient earnings profile.

PLife Reit owns 53 healthcare-related properties, including three of Singapore's largest private hospitals: Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital.

The brokerage has a "buy" call on PLife Reit with a target price of S$5.75, reflecting upside potential of 21.3 per cent from the close on Wednesday at S$4.74.

READ MORE: Retail Reits facing a bump in the road -- for now