We maintain our UNDERWEIGHT rating on the S-REITs sector. We expect yield spreads to stay close to or above the 7 year average as this period of normalising interest rates amidst an unfavourable demand/supply dynamics could be deemed one of the most challenging periods for S-REITs over the past 7 years.
How do we view this?
Figure 1: Market expectations for further rate hikes in 2017
Figure 2: S-REITs historical yield spread vs Singapore 10 year govt bond yield
We favour REITs with lower gearing, supported by favourable macro-economic conditions or those with favourable long leases. Our ACCUMULATE ratings remain for Croesus Retail Trust, Mapletree Industrial Trust and First REIT.
We maintain our UNDERWEIGHT rating on the S-REITs sector. Investors can refer to our February sector report for a more in depth outlook for each individual REIT sector and our thesis for underweighting the sector amidst this rate hike cycle.
Figure 3: REIT Universe and PSR Reit Ratings