- The pushback in expectations of interest rate cuts has tamed down our earlier optimism of S-REIT sector recovery in 2H24. With only a single rate cut expected at end-2024, we believe recovery in S-REITs is now only likely by end-4Q24 or early 2025, with the S-REIT sector expected to be rangebound till then.
- - Read this at SGinvestors.io -
- Keep OVERWEIGHT; Top Picks: CapitaLand Ascendas REIT (SGX:A17U), Keppel REIT (SGX:K71U), AIMS APAC REIT (SGX:O5RU), and CDL Hospitality Trusts (SGX:J85).
S-REITs DPU expected to continue declining in FY24 before a recovery in FY25.
Key factors driving persistent S-REITs weakness
- - Read this at SGinvestors.io -
- Reason being the sharp spike in interest rates caused a surge in ultra-low financing costs that S-REITs enjoyed during the past decade. This has resulted in lower distributions, coupled with asset value decline from cap rate expansions (especially overseas markets) as investors demanded higher acquisition yields to offset the rising cost of capital.
- Rising interest rates also resulted in a host of other higher yielding options available in the market, i.e. high quality corporate bonds, treasury bills, and fixed deposits narrowing yield differential, resulting in a significant capital shift.
What will drive a potential sector recovery?
- Read more at SGinvestors.io.
Singapore Research RHB Securities Research | https://www.rhbgroup.com/ 2024-06-26
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