While S-REITs have returned a positive 3.2% since the end of June on the back of rate cut expectations, the analysts still see room for growth. This is underpinned by the continued widening of yield spreads versus the 10-year government bond yield, which has been dropping in tandem with the rate cuts, they write. The analysts also see potential earnings upside as funding costs lower and inorganic growth opportunities pick up the pace, as well as improvements in balance sheet metrics such as gearing and interest coverage ratios (ICRs).
With the possibility of a rate cut from as early as September this year, investors should consider increasing their exposure into Singapore REITs (S-REITs) say CGS International analysts Lock Mun Yee, Lim Siew Khee and the Singapore research team.
CGSI economists are anticipating 75 basis point (bps) cuts in 2024 followed by a further 150 bps cuts in 2025. The dovish stance is expected to achieve a terminal rate of 3% by the start of 2026.
