Singapore REITs - UOB Kay Hian 2023-01-11: The Test Of Fire Makes Fine Steel

Singapore REITs - The Test Of Fire Makes Fine Steel


We assessed the resiliency of S-REITs’ balance sheet – Who is the fairest of them all?

Support of strong sponsor matters.

Stress test to probe for vulnerability of S-REITs

  • We performed a stress test on S-REITs assuming interest rates for all currencies stay at peak levels on a permanent basis. We utilise peak interest rates based on revised forecasts by UOB Global Economics & Markets Research (3M SIBOR: 4.55%, 3M Compounded SORA: 4.31%, US$ Fed Funds Rate: 5.00%, EUR Refinancing Rate: 2.75%, GBP Repo Rate: 4.00%, AUD Official Cash Rate: 3.10% and Y Policy Rate: -0.10%).

Not as fatal as widely feared.

Maintain OVERWEIGHT on Singapore REITs

  • The Fed expects core personal consumption expenditure inflation to recede gradually to 3.5% in 2023 and 2.5% in 2024. Based on the Fed’s dot plot, the Fed Funds Rate would be cut by 100bp to 4.1% in 2024. Thus, S-REITs have to weather higher interest rates in 2023 before the pressure eases in 2024.
  • The sector provides attractive distribution yield of 5.97%, which is 1.1 standard deviation above long-term mean. Downside is limited to a correction of 8.4% if distribution yield spikes to 2 standard deviation above mean at 6.52%.

Weathering headwinds from higher interest rates.

S-REITs sector catalysts

  • Hospitality, retail and office REITs benefitting from the reopening and easing of COVID-19 restrictions in Singapore and around the region.
  • Limited new supply for logistics, office and retail segments in Singapore.

S-REITs sector risks

  • Escalation of the Russia-Ukraine war beyond Ukraine.

Jonathan KOH CFA UOB Kay Hian Research | 2023-01-11

More views on outlook of Singapore REIT (S-REIT) sector:
Analyst Reports on Singapore REIT Sector

SGX Stock / REIT Search


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