Singapore REITs: Entry opportunities amidst heightened fear
- Recession fears a key topic in recent discussions; investors’ positioning turns more defensive
- Acquisition momentum likely derailed as spike in funding costs eats into accretion; Japan and Europe only jurisdictions where deals are possible
- China reopening: A potential bright spark for China-focused plays and hospitality sector
- Sector trades at a FY23F yield of 6.2%; spread of 3.2% vs. 10-year bond yield
REITs continue to be looked upon favourably as a natural inflation hedge
The Singapore REIT Index (FSTREI) was flat for the month at 0.1%, outperforming the Straits Times Index (STI). As an asset class, REITs continue to be looked upon favourably as a natural hedge against inflation, while interest rate hikes were priced in early by the markets back in 1Q. Singapore’s core inflation rose to 3.6% in May, or the highest level in more than 13 years. Moreover, the slower GDP growth forecast for Singapore this year was also penciled in with the higher-than-expected rise in inflation and slower economic activity in the region, which has caused risk-on sentiment to rotate towards the broader STI.
The winning sectors this quarter include hospitality, which rose 2.1% m-o-m, followed by office (-0.7% m-o-m) and retail (-2.1% m-o-m). REITs within the reopening trade sectors continue to outperform while gunning for better returns with the return of travel and tourism, while the office sector continues to see higher rental bids amidst a tight and declining supply pool.
Top-performing stocks in June include Frasers Hospitality Trust (+6.9% m-o-m) and Mapletree Logistics Trust (+3.7 m-o-m). Frasers Hospitality Trust announced its privatisation offer at 72 Scts cash per share; the share price ran up close to 1.0x P/NAV. Mapletree names continue to be bought at oversold levels.