Singapore REITs - DBS Research 2023-11-02: Be Brave When The Street Is Fearful

• High benchmark yields a near-term headwind for the S-REITs, but valuations (P/B below -1 standard deviation) imply that it is time to add selectively. Positives from recent management meetings reinforce our stance that retail, industrials remain most resilient; hotels’ growth trajectory remains on an uptrend.
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Not time to be negative as rates peak.

• The recent hawkish stance by Federal Reserve Department (Fed) Chair Jerome Powell, while having expectedly skipped a rate hike in Sept 23, leaving interest rates at the current 5.25% to 5.50% range, has now signalled a strict policy path into 2024 as the US economy has remained more resilient with steady job growth numbers. 10-year bond yields have responded in kind, with the US two-year yield crossing 5% and the US 10-year yield now hovering around the 4.8% to 4.9% range in recent weeks.
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• Overall, while the higher interest rate environment presents higher opportunity costs for investors when investing in yield instruments (i.e. REITs, bonds, etc.), we believe that during a peak (or peaking rates), it is not advisable to turn bearish but rather seek out opportunities in the currently volatile trading environment.
• The Singapore REITs sector is currently trading at FY24F yield and a P/B valuation of 0.83x, which is attractive.

S-REITs’ prices remain weak in Oct 23.

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Geraldine WONG DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-11-02 SGinvestors.io

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