S-REITs Monthly Update (Jun 23)
S-REITs could encounter some headwinds as interest rates are expected to edge higher in the near term. We focus on blue chip S-REITs with resilient balance sheets that are better able to weather headwinds from higher interest rates. Maintain OVERWEIGHT. BUY CLAR (Target: S$3.30), CLAS (Target: S$1.39), FLT (Target: S$1.56), MINT (Target: S$2.82) and MLT (Target: S$1.99).
WHAT HAPPENED IN JUNE
• Recovery momentum intact for hospitality sector. Average room rate increased 21.7% yoy but receded marginally by 0.4% mom to S$270.75 in May 23. Average occupancy improved 7.1ppt yoy and 2.3ppt mom to 79.9%. Revenue per available room (RevPAR) increased 33.5% yoy and 2.5% mom to S$216.19, holding steadily above prepandemic levels. Room revenue hit S$398m in May 23, growing 72.7% yoy and 9.1% mom. Profitability is expected to surpass pre-pandemic levels as the increase in room rates has outpaced rising operating costs. Recovery in the hospitality sector is supported by rising visitor arrivals, which exceeded 1m for three consecutive months.
• Megastars are a growth booster for the hospitality sector. American pop star Taylor Swift has added three more shows to her The Eras Tour at Singapore’s National Stadium in Mar 24 due to overwhelming demand. British band Coldplay also added two more shows to its Music of The Spheres World Tour in Jan 24. Both Taylor Swift and Coldplay will be performing in Singapore for six days. According to The Business Times, room rates for three- and four-star hotels have jumped more than 20% during the period the megastars are in town.
• FSTREI eased 0.2% in Jun 23, underperforming compared with the STI’s 1.5% gain. The dot plot indicates another two rate hikes of 25bp each to bring Fed Funds Rate to 5.50% by end-23. Yield for 10-year Singapore government bonds rose 22bp to 3.07% in Jun 23.
• Top outperformer: Data centre REITs DCREIT (2nd largest tenant Cyxtera received six letters of intent to acquire the company) and KDCREIT (appointed Loh Hwee Long as new CEO) gained 13.1% and 3.3% respectively. Hospitality REITs FEHT and CDREIT gained 5.9% and 5.2% respectively. US office REITs KORE and MUST appear to have bottomed and rebounded 5.0% and 2.4% respectively.
• Top underperformer: Small-cap S-REITs led the losers. IREIT dropped 8.2% after launching 161:1,000 preferential offering at an issue price of S$0.408. SASSR dropped 5.4% due to a slowdown in China. AAREIT lost 5.2% due to its equity fund raising.
