Singapore REITs - DBS Research 2023-03-17: Higher For Longer? (or No Longer)

• 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.

Dale LAI DBS Group Research | Derek TAN DBS Research | Rachel TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-03-17 SGinvestors.io

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