S-REITS well-positioned to weather interest rate hikes: RHB

This after S-REITs delivered a modest 6% in total returns in 2021. 

Singapore-listed real estate investment trusts (S-REITS) are prepared to ride an interest upcycle this 2022, RHB projected, following a modest performance from the previous year.

RHB’s analyst, Vijay Natarajan, points to central banks being forced to raise interest rates due to surges in inflation and the stagnation of economic growth. He also sees the threat of the pandemic as close to finishing, given high vaccination rates and increased adaptability from sectors. 

Going into 2022, S-REITS are still expected to be in a good position to hold out through these hikes, given a sector gearing of 37%. For context, this is below the regulatory limit of 50%.

Almost 77% of S-REITs debts are hedged, with sector average interest cover of 5.2x and weighted average debt maturity of 2.8 years. 

Natarajan also says that industrial and office REITS will still maintain their place as preferred sectors, due to their earnings resilience. A period of six to 12 months is expected for hospitality REITs, with current valuations being expensive. Meanwhile, office REITs are expected to see short-term out performances.