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With the Federal Reserve more dovish now, market analysts expect Singapore real estate investment trusts (S-Reits) to witness further gains, with hospitality and industrial Reits as their preferred sectors, reported the Business Times.
“While investors could eye near-term profit taking, fundamentals remain sound,” noted Maybank Kim Eng analyst Chua Su Tye. “Delayed rate hikes and low interest rates suggest (S-Reits) will likely stay in favour as yields remain low.”
Credit Suisse expects S-Reits to witness a one to four percent growth in distribution per unit (DPU) over the next two years amidst the improving demand-supply dynamics within the underlying property markets and/or from acquisitions abroad.
S-Reit prices could also get a further boost as interest rates remain lower for longer, which means lower refinancing risk, said DBS Group Research.
“With rate hikes behind us, coupled with a Fed pro-growth stance, we believe there is further momentum to bring S-Reits prices higher,” wrote DBS analysts Mervin Song, Carmen Tay and Derek Tan in a research note last week.
In fact, they expect S-Reits to return another 10 percent before year-end.
This comes as the S-Reits sector had already outperformed the broader Singapore market, with the FTSE ST Reit Index registering year-to-date gains of 12.7 percent, noted Andy Wong, senior investment analyst at OCBC Investment Research.
The Straits Times Index (STI) and the MSCI Singapore Index, on the other hand, posted returns of 8.3 percent and 9.1 percent, respectively.
And while total returns in 2018 for the FTSE ST Reit Index was negative at 3.7 percent, the index still fared better than the STI and MSCI Singapore Index which registered returns of -6.5 percent and -7.6 percent respectively.
In fact, the FTSE ST Reit Index have been posting annualised returns of 5.1 percent over the last 12 years, compared to the 3.3 percent and 3.2 percent annualised returns for the STI and the MSCI Singapore Index respectively.
“Reits have been very resilient and consistent in outperforming the broader Singapore market,” said Wong, underscoring the defensiveness of the sector.
“In uncertain times, they are pretty defensive because of the leases that are locked in. In bull markets… underlying property asset values and underlying rentals of the Reits also benefit from the up cycle.”
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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