Real estate investment trusts (REITs) and infrastructure funds are likely to offer attractive returns of around 10-15% this year, bolstered by the reopening of international travel and the prospects of higher hotel occupancy rates, says Win Phromphaet, chief investment officer at Principal Asset Management.
REITs and infrastructure funds reported better performance in the fourth quarter last year, even though returns lagged the SET Index and stocks in the same sector.
"Local REITs returned to investors' attention in February, but their prices are still behind the market by about 20-30%. REITs and infrastructure funds in other countries, namely the UK, Singapore and Australia, have rebounded to pre-Covid levels already," he said.
Mr Win said the fundamentals of Thai REITs and infrastructure funds are quite different from their global counterparts because Thai REITs are concentrated in the hotel and retail industry, which has been battered by a slump in tourists and spending power.
Many retailers have had to cut rental prices by 20-30% to help their tenants, but market prices have also seen a huge drop, excluding dividend yields of about 4-5% that investors normally receive as regular returns.
The prices of infrastructure funds such as DIF and BTSGIF also dropped, even though the funds' main businesses have not been affected much by the pandemic. This means cheaper prices while market dividend yields have increased to 6-8%, he said.
"The downside risk is low, but there is wide upside gain. I expect the total return from local REITs and infrastructure funds to be 10-15%," Mr Win said.
Last year local REITs and infrastructure funds underperformed as investors aimed to cut losses and switch to other shares that were not hit as hard by the pandemic.
REITs experienced a huge sell-off because properties recorded lower occupancy rates, which curbed their revenue stream.
The situation should improve this year as attractive returns lure back investors, he said.
Saharat Chudsuwan, head of marketing and wealth advisory at Tisco Asset Management, said vaccine rollout in Thailand has started and the country plans to reopen to foreign tourists, meaning hotel occupancy rates and the price of REITs and infrastructure funds will likely return to pre-Covid levels.
Natchaphon Rodjanarowan, a senior associate at Kasikorn Securities, said REITs' overall price performance is still 26% lower than pre-Covid levels, though the SET Index has already bounced back.
Mr Natchaphon said the undervalued price is a positive, however the bond yield is another factor to keep an eye on.
"The market prices of REITs and infrastructure funds seem to reflect a rise of bond yields by about 0.4-0.5%, but global investors predict inflation might rise as the US government continues to inject money to speed up its economic recovery," he said.
Normally the inflation rate moves in the same direction as bond yields and interest rates. If it rises, it could impact the price of fixed income funds and REITs.
"I have a neutral view and suggest selective investment," Mr Natchaphon said.
Kasikorn Securities recommends three REIT picks from retail, industrial and office: ALLY, Hemraj REIT and BWORK. ALLY, a leasehold retail REIT, is expected to return 9.5% as retail consumers returned to normal levels in the fourth quarter last year. The retail sector is primarily driven by local customers, not foreign tourists.