Kiss goodbye to high REIT yields

SINGAPORE (Dec 20): DBS Group Research has an “underweight” rating on the Singapore REIT sector as it anticipates four interest rate hikes by the US Federal Reserve in 2017 alone.

“Heightened expectations of a faster rate hike momentum in 2017 under new US President Trump’s administration will likely cast a shadow on Singapore REITs’ ability to maintain its share price outperformance going forward,” say DBS analysts Derek Tan and Mervin Song.

But that’s not the only bad news for REITs. Tan and Song anticipate a slowdown in the local economic outlook which could affect rentals and occupancy rates. They have forecast market rentals to decline by between 5% and 10% and rental reversions to be flat or negative. Excluding these, DPU growth is already forecast to be just 1.3% for FY17, compared with the 5-year historic average of 3%.

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