- The US Fed’s strong signaling of rate cuts should lower the discount rate for the REITs sector in Singapore and improve sentiment. Sustained rate cuts should also eventually lower borrowing rates. As such, we upgrade our sector stance. We also rehash how REITs stack up for rate cuts.
Green shoots reappear
- - Read this at SGinvestors.io -
- Every 50bps decrease in the discount rate improves fair value by about 10% on average.
Classical conditioning
- Further, lower cost of capital should help to put a floor on asset values, reignite the transaction market and accelerate capital recycling.
- Lower repricing of debt on floating rates will help to soften the growth of financing expenses.
- - Read this at SGinvestors.io -
- Overall, borrowing cost will decline only if rate cuts are deep and sustained. Every 50bps fall in base rates leads to a 3.4% increase in distribution on average.
No surprises in S-REIT results
- This quarter’s results yielded no surprises with falling distributions, and we expect the trend to persist. Distribution and NAV for the REITs we cover fell 5.5% and 1.0% y-o-y on average. Finance expenses, FX headwinds and income vacuum from divestments/asset enhancements offset resilient operations.
- Read more at SGinvestors.io.
