Analysts turn bullish on oversold SREITs after first rate hike

Previous fears were unfounded.

The US Federal Reserve’s decision to finally raise interest rates bodes well for Singapore’s battered REITs, according to analysts from KGI Fraser.

The REITs’ share prices have dropped by around 12% since June, as jittery investors dumped stocks in the fear that REITs will be negatively impacted once rates finally rise.

However, the US Fed’s decision to raise rates very gradually should be enough to allay these concerns, KGI Fraser said.

“After a steep decline in stock prices with a more measured pace of expected rate increases, we think that the SREITs and Business Trusts under our coverage looks increasingly attractive,” said the report.

“While we acknowledge that certain sub-sectors have seen decline in rents, such as office and hospitality, the selldown has been broad-based across various REITs. Year on year, Singapore REITs (-8.1%) have underperformed REITs in the US (+1.8%), Europe (+22.3%) and Hong Kong (+1.1%), even after including dividends despite already offering high yields. If the comparison is done in USD, Singapore REITs underperformed more (-14.1%). Comparatively, SREITs look increasingly attractive versus overseas REITs,” the report added.