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Singapore REITs - UOB Kay Hian 2022-07-01: Strength Of Balance Sheet Being Stressed & Tested

Singapore REITs - UOB Kay Hian Research | SGinvestors.io ASCOTT RESIDENCE TRUST (SGX:HMN) CDL HOSPITALITY TRUSTS (SGX:J85) FAR EAST HOSPITALITY TRUST (SGX:Q5T) ASCENDAS REAL ESTATE INV TRUST (SGX:A17U) MAPLETREE INDUSTRIAL TRUST (SGX:ME8U) MAPLETREE LOGISTICS TRUST (SGX:M44U) FRASERS CENTREPOINT TRUST (SGX:J69U) LENDLEASE GLOBAL COMMERCIAL REIT (SGX:JYEU) CAPITALAND INTEGRATED COMM TR (SGX:C38U) FRASERS LOGISTICS & COMMERCIAL TRUST (SGX:BUOU) MAPLETREE COMMERCIAL TRUST (SGX:N2IU) SUNTEC REAL ESTATE INV TRUST (SGX:T82U) ELITE COMMERCIAL REIT (SGX:MXNU) KEPPEL PACIFIC OAK US REIT (SGX:CMOU) MANULIFE US REIT (SGX:BTOU) UNITED HAMPSHIRE US REIT (SGX:ODBU) DIGITAL CORE REIT (SGX:DCRU)

Singapore REITs - Strength Of Balance Sheet Being Stressed & Tested




The Fed’s renewed fervour to clamp down on inflation.

  • The Fed has accelerated the tempo of interest rate hikes to quell inflationary pressures. It hiked the Fed Funds Rate by a massive 75bp to 1.50% after the FOMC meeting on 15 Jun 22.
  • Based on the Fed’s dot plot, the median projected path for Fed Funds Rate would hit 3.4% by end-22 and 3.8% by end-23. The forecast translates to four hikes totalling 200bp in 2H22, and we expect another 75bp hike on 27 July.
  • The rate hikes are front-loaded in 2022 and the intensity of rate hikes could ease after the FOMC meeting on 21 Sep 22.


Interest rates in Singapore have moved up accordingly.

  • Higher inflation and the Fed’s intervention have caused short-term interest rates to surge. The US yield curve has flattened, indicating a slowdown in economic growth. Fortunately, the 10-year – 2-year term spread has stayed marginally positive at 0.1%. The current short-end of the yield curve implies forward short-term interest rates at 2.7% for one year, 3.4% for two years and 3.4% for three years.
  • 3-month SIBOR and 3-month compounded SORA have rose 147bp and 57bp respectively to 1.91% and 0.76% in 1H22. UOB Global Economics & Markets Research forecasts 3-month SIBOR and three-month compounded SORA to reach 2.75% (+2.31ppt y-o-y) and 2.29% (+2.10ppt y-o-y) respectively by end-22.


Maintain OVERWEIGHT on Singapore REITs.

  • S-REITs are not out of the woods yet but the gradual easing of inflationary pressure provides some respite. Real estate is a hedge against inflationary pressure, which could potentially push rents higher.
  • Downside for the S-REITs sector is limited to 13.6% if distribution yield spikes to 2x standard deviation above long-term mean.

The good, the bad and the ugly.



Impact of higher interest rates to Singapore REITs' distribution.

  • We now expect US Fed Funds Rate to hit 3.25% by end-22 (previous: 2.5%). We have factored in the negative impact on DPU from the accelerated hikes in interest rates around the globe based on forecasts by UOB Global Economics & Markets Research.
  • On average, we have adjusted 2023 DPU forecast lower by 2.1% for 20 S-REITs under our coverage. See details in the PDF report attached below.


Digital Core REIT (SGX:DCRU) - Upgrade to BUY



Mapletree Logistics Trust (SGX:M44U) - Maintain BUY


Singapore REIT Sector Catalysts

  • Hospitality, retail and office REITs benefitting from the reopening of the economy.
  • Limited new supply for the office, logistics and retail segments in 2022.


Singapore REIT Sector Risk

  • Escalation of the Russia-Ukraine war beyond Ukraine.





Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-07-01
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