- We see tactical opportunities for the S-REITs sector ahead, on account of expectations of an imminent pause in the Federal Reserve’s (Fed) rate hike cycle, but would remain selective as macro headwinds remain, while market volatility is also likely to stay.
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- Furthermore, given the increased vagaries in the macroeconomic landscape, we believe more investors may seek shelter in defensive instruments such as S-REITs, although S-REITs would not be immune to a slowdown or contraction in economic activities.
Resilient financial performance supported by healthy operating metrics but partially offset by higher borrowing costs
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- Looking at the capital management profile of our coverage universe, the average aggregate leverage ratio was stable at 37.2% (-0.1 percentage points (ppt) q-o-q), while the proportion of debt hedged increased from 72.9% (as at 30 Sep 2022) to 73.7% (as at 31 Dec 2022).
- Based on our sensitivity analysis, for every 100bps increase in borrowing costs, the average impact to our distribution per unit (DPU) forecasts would be -3.3% for current financial year (FY-1), and -3.2% for the next financial year (FY-2).
- Besides higher interest rates, higher utility costs and currency fluctuations remain risks for the sector.
Consensus’ DPU forecasts have been revised downwards; we forecast slight growth in DPU ahead
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Above is the excerpt from report by OCBC Investment Research.
Clients of OCBC Securities may be the first to access the full report in PDF @ https://www.iocbc.com/.
OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2023-04-06
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