- We are now turning more positive in our outlook as we near the peak of the rate cycle while S-REITs valuations have become more attractive (0.8x P/BV, at -2 standard deviation from the mean) from the recent sharp correction, leading to good entry levels. Upgrade REITs sector to OVERWEIGHT from Neutral; at the tail-end of the S-REIT downcycle.
- - Read this at SGinvestors.io -
DPU outlook unexciting but emphasis more likely on P/BV, with rates peaking.
- The ongoing repricing of S-REITs’ debt, coupled with floating debt exposure, would result in continued high interest cost pressures for S-REITs outpacing their top line growth next year.
- - Read this at SGinvestors.io -
- We also believe there is room for upside revisions to our and consensus DPU forecasts – should the US Federal Reserve (US Fed) pivot early.
- In addition, as we near the tail-end of the interest rate cycle and the sector’s operational performance remaining robust, this should mark the potential end of asset repricing (as valuations decline). Investors, hence, are likely to take cues from the steep trading discounts to S-REITs’ book values and could look for bargains across the sector, instead of buying physical assets directly.
Yield spreads could widen as the risk-free rate retreats.
- Read more at SGinvestors.io.
Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2023-11-20
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