Singapore REITs Monthly - Phillip Securities 2024-10-18: DPU Is Expected To Return To Growth In 2025

• We expect most REITs to post y-o-y DPU declines in 3Q24 due to higher interest expenses. Given the high percentage of loans on fixed rates, it will take time for them to benefit from lower interest rates. We expect a turnaround in 2025 as S-REITs begin to benefit from lower rates with the gradual expiration of interest rate hedges.
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• All sub-sectors posted share price gains in September, attributed to the 50bps interest rate cut by the Fed. The overseas commercial sub-sector was the top performer in September, gaining 9.4%, while the worst-performing sub-sector was retail, which grew by 0.1%.
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Sector Round-up

• The S-REITs Index gained 3.5% in September after the Fed cut its Fed Funds Rate by 50 bps to a target range of 4.75%-5% on 18 September. We expect S-REITs share prices to continue their recent rally and to outperform in 4Q24 and 2025 as with lower interest rates, S-REITs will benefit from
  1. lower financing costs,
  2. higher dividend yield spreads over bonds, and
  3. higher property valuations as cap rates compress.
• However, we expect most REITs to post a y-o-y DPU decline in 3Q24 due to higher interest expenses, as it will take time for them to benefit from the lower rates, given the high percentage of loans on fixed rates.
• DPU is expected to return to organic growth in 2025 with the gradual expiration of interest rate hedges and a lower hedging ratio. Based on our sensitivity analysis, every 100bps decrease in interest rates will improve S-REITs DPU by ~5% on average.

Transaction volume picking up

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Darren Chan Phillip Securities Research | Liu Miaomiao Phillip Securities | https://www.stocksbnb.com/ 2024-09-23 SGinvestors.io

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