Singapore REITs (S-REITs) are likely to remain “sideways” in the near term till there is clarity on the overall trajectory of the rate hikes by the US Federal Reserve in the second half of 2023, say DBS Group Research analysts Geraldine Wong and Derek Tan.
In their flash note on the overall S-REIT sector, Wong and Tan observe that May was a “month of red” for S-REITs as markets speak of another round of rate hikes even though it was mainly agreed upon that the rate hike in May was the final one for the year.
The market is said to be pricing in another 25 basis point (bps) hike in June to July, the analysts add. A further hike will depend on the US’s upcoming inflation data, which will be released on June 13, in time for the Fed’s June meeting. In April, the US’s core inflation data rose to 4.7% from 4.6% in March while consumer spending grew by 0.8% in May, which is a wet blanket for policymakers and their target inflation goal of 2.0%.
In May, S-REITs fell by 4.5% m-o-m with all the subsectors underperforming on a m-o-m basis. The relative outperformers were the European-focused REITs, mid-cap industrial stocks and the office sector, which fell by 0.4%, 1.8% and 2.8% on a m-o-m basis respectively. The US hospitality subsector saw little change m-o-m due to low trading liquidity.
During the month, Sasseur REIT, Cromwell European REIT and EC World REIT were the best-performing counters with m-o-m growths of 4.2%, 3.9% and 1.8% respectively. These three names were also among those who posted better-than-expected results for the 1QFY2023 earnings season.
Is the window still open for equity fund raising?
See also: Despite challenges, REITs are able to raise equity
Year-to-date (ytd), S-REITs saw a total of $1.3 billion raised in equity proceeds. The amount was all concentrated within the mid- and large-cap industrial space, of which a bulk were raised to fund identified acquisitions. During the period, most of the S-REITs were looking to grow their exposures within the new economy space which include data centres, logistics and high-specifications industrial properties.
These acquisitions were expected to be accretive to the REITs’ distributions per unit (DPUs) upon completion and help defend from any erosion caused by higher interest rates.
“We note that the fundraising was generally well received by investors with more than a 3x subscription rate, indicative of investor interest to re-enter the sector,” the analysts write.
