S-REITs Bi-Weekly Updates (16-30 Sep 22)
A disciplined and hawkish Fed and the UK’s fiscal policy mishap sent S-REITs reeling by 7.8%. We see sanity gradually being restored as nerves are calmed. S-REITs are resilient due to their stable cash flows. The panic selling has brought valuations to attractive levels and bargains have emerged. Our bottom-up and diversified BUY picks are CAT (Target: S$1.29), FCT (Target: S$2.56), LREIT (Target: S$0.91), MINT (Target: S$3.12) and MLT (Target: S$1.94). Maintain OVERWEIGHT.
WHAT HAPPENED IN THE LAST TWO WEEKS
• F1 night race returning after hiatus of two year. Singapore welcomed an influx of international visitors here to catch the F1 Singapore Grand Prix over the weekend. Hotels located near the Marina Bay street circuit, such as Marina Bay Sands, Parkroyal Collection Marina Bay, Mandarin Oriental and The Fullerton Hotel, are operating at close to full capacity. Room rates were typically above S$2,000 per night. The long absence of two years created pent-up demand. According to event organiser Singapore GP, grand stand and combination tickets were sold out within six hours of their release.
• Ferocious rate hikes almost reaching a climax. The Fed maintained its disciplined and hawkish stance and hiked the Fed Funds Rate by a third consecutive 75bp to 3.00% after the FOMC meeting on 21 Sep 22. Based on the Fed’s dot plot, the median projected path for Fed Funds Rate would hit 4.4% by end-22 and 4.6% by end-23. The projection is expected to lead to continued steep rate hikes of 75bp on 2 Nov 22 and 50bp on 14 Dec 22, bringing the Fed Funds Rate to 4.25 by end-22. The rate hikes are front-loaded in 2022 and the intensity of rate hikes is expected to be modest in 2023.
• FSTREI corrected 7.8% in the past two weeks and underperformed the STI that lost 4.2%. Markets were spooked by elevated inflation with US CPI at 8.3% for Aug 22 and the UK’s fiscal policy mishap. Yield for 10-year Singapore government bonds rose 32bp to 3.48%, surpassing the recent peak of 3.24% set in mid-June.
• Top outperformer: Retail REITs SPHREIT, FCT and LREIT suffered milder corrections of 4.3%, 4.8% and 5.0% respectively. Chinese REITs CLCT and SASSR saw mild declines of 3.7% and 6.0% respectively.
• Top underperformer: European REITs bore the brunt of selling with ELITE and CERT losing 16.1% and 11.4% respectively. US REITs KORE (-15.4%), MUST (-15.0%), UHU (- 13.0%), PRIME (-11.5%) and DCREIT (-10.3%) also saw heavy losses.