Singapore REITs - DBS Research 2022-10-05: Down But Not Out

Singapore REITs - Down But Not Out

Singapore REITs - DBS Group Research | SGinvestors.ioMAPLETREE PANASIA COM TRUST (SGX:N2IU) KEPPEL REIT (SGX:K71U)
  • Sept 22 was a bruising month for S-REITs, which were down by ~7.3%, underperforming the Straits Times Index (STI).
  • The drop in S-REITs share prices came largely on the back of persistent inflation in the US, resulting in the Fed delivering another huge 75bps hike in Sep 22 but also guiding that more is to come till “the job is done” in taming inflation.
  • 10-year US and SG yields spike by more than 50bps within the month and now sit at multi-year highs of ~3.8% and 3.5%, respectively, and are approaching peaks, in our view.

S-REITs valuations are attractive; what catalysts are we anticipating?

Can yield spreads remain tight?

  • Yield spreads appear compressed at ~3.1%, below its 5-year mean. This is due to higher 10-year SG yields, which have hit 15-year highs. We note that spreads have compressed to < 2.0% before in the 2006-2008 period, but operating conditions then were more buoyant.
  • That said, we believe that the strong growth profiles of a 6.0% CAGR (highest in 5 years) supports the current yield spread of ~3.1%. With 10-year yields expected to head down in 2023 as inflation tapers, we expect this to be positive for the sector overall.

US office and EU-focused S-REIT bore the brunt of the sell-off and are down ~26% to ~34% year to date

  • While the outlook remains clouded, yields for these REITs are attractive at >10%-13%, albeit at new lows. We believe this is an opportunity to look at selected REITs with a more stable earnings profile. Keppel Pacific Oak US REIT (SGX:CMOU) and Cromwell REIT (SGX:CWBU) are potential names that investors should consider, in our view.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Derek TAN DBS Group Research | Rachel TAN DBS Research | Dale LAI DBS Research | 2022-10-05
SGX Stock Analyst Report BUY MAINTAIN BUY 2.300 SAME 2.300

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