- Short-term interest rates to remain elevated even after Fed pause; focus will remain on refinancing.
- S-REITs' overall ICRs and gearing still within healthy levels, even with prolonged higher financing costs.
- Balance sheets remain stable for now, but be watchful of office sector, given negative funding spreads.
- - Read this at SGinvestors.io -
Yields retreat but S-REITs are not out of the woods, as refinancing spreads are still positive.
- What a difference a week can make! The recent confidence crisis emerging with regard to US/UK banks has led to a retreat in US 10-year yields, as markets price in the expectation of the Fed striking a balance between financial stability and combating inflation.
- While markets look to price in an earlier-than-expected rate hike pivot by the Fed, we look past this and at how S-REITs’ financial balance sheets can withstand an extended period of high interest rates in the midst of an economic slowdown.
Implication 1: Short-term yields remain “higher for longer”.
- - Read this at SGinvestors.io -
- That said, we remain comforted that the refinancing profile is supportive (~14%/17% of debt expiring in FY23/24), with a high hedge ratio of ~75%, which is ample defence for now.
Implication 2: Interest coverage ratios (ICRs) could fall to 1.9x for selected S-REITs.
- Read more at SGinvestors.io.
