Singapore REITs 3Q23 Preview - Maybank Research 2023-10-12: Waiting For Godot

• Repricing of debt and FX-translation losses are likely to outweigh operational resilience across most sub-sectors leading to lower distribution. Low-base effects caused by the pandemic are dissipating, which sets S-REITs up for tougher comparisons for 3Q/2H.
• Reversions will be positive as COVID-era rents are marked to market.
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Macro update

• 10-year S$ government yields are up ~40bps from end-2Q, which mirrors the ~9% decline in the S-REIT index over the same period. Meanwhile, REIT bond and perpertual security prices are down 4.5% over the past three months on average.
• Yield curve is less inverted limiting opportunities to lower funding cost. 3-month rates for S$ and US$ has inched up 4-5bps over the quarter.
• Strength of the S$ (+1.5% q-o-q, +7% y-o-y against key functional currencies) should weigh on FX translation.
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• Consensus DPU estimates are down 1.5%.

Focus on debt metrics and operational resilience

• The market’s focus is likely to be on operations and funding cost in this quarter’s results updates. (See earnings calendar for earnings announcement dates of S-REITs)
• The re-opening tailwinds and easier comparisons from the pandemic era are behind us. As such, topline growth should represent more of normalized levels, albeit with some help from reversions of pandemic-era leases.
• Some of the input costs, such as utilities, are plateauing while hiring norms have become more flexible for sectors like hospitality. This should stabilize margins.
• Debt costs are likely to inch up with additional headwind from rate and FX hedges.
• Capital recycling is likely to remain a focus area with office and hospitality yielding negative spreads, as opposed to the retail and industrial sectors.
• Refer to figure 1 in the report attached below for the summary on reit-specific items and key sector trends to monitor.

Remain selective

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Krishna Guha Maybank Research | https://www.maybank-ke.com.sg/ 2023-10-12 SGinvestors.io

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