RHB Group Research analysts Loong Kok Wen, Vijay Natarajan and Raja Nur Aqilah Raja Ali remain overweight on Singapore REITs (S-REITs), with average yields currently at 5.8%.
Of the S-REITs, the analysts have indicated their top picks as Ascendas REIT, Suntec REIT, and ESR REIT.
“Despite the impending interest rate hike, we believe S-REITs will still outperform, due to stronger growth prospects as the economy reopens, and better demand and supply dynamics, which underpin healthy rental reversions,” say the analysts.
Although interest rate hikes are generally unfavourable to REITs, the analysts think the impact is lesser for S-REITs given the expectation of a stronger economic rebound, as well as earnings growth for the sector.
Of the S-REIT and Malaysian REIT (M-REIT) sub-sectors, the RHB analysts continue to favour industrial REITs in the region “given the robust demand from the technology and e-commerce sectors”.
“[The] industrial [industry was the most active segment in Singapore and Malaysia, while S-REITs also expanded their presence in overseas markets,” the analysts add, as they note that industrial REITs in the region continued to be most preferred for their resilience and growth.
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“While the Singapore Government is initiating a longer-term push to transform Singapore into a smart nation, the semiconductor and electronics industries in Malaysia and Singapore are fast expanding due to global demand,” the analysts explain. “The rising e-retailing space in Southeast Asia is another driving factor for the warehouse segment.”
Moreover, as Singapore has achieved high vaccination rates and is shifting towards a “living with Covid-19” strategy, the analysts view office S-REITs as the best proxies for recovery play. “Despite the emergence of the Omicron variant, many countries chose to manage via vaccinations and booster shots instead of lockdowns. Singapore’s Grade-A office segment continues to see positive rental reversions,” they say.
Acquisitions to ease
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In addition, the analysts expect acquisition momentum to ease on expectation of higher interest rates. “As interest rates are expected to rise this year, we believe REITs in the region will slow down their acquisition pace,” they say. “S-REITs were on an acquisition spree in the last two years, as the sector took advantage of low interest rates.”
Photo: Bloomberg
