SREITs' 9M DPU growth largely muted

Overall performance falls 0.4%.

Looking back at the financial performance of the S-REITs sector YTD, OCBC Investment Research sees a common trend of a moderation in DPU growth, with some REITs even recording negative growth for 9MCY16.

According to the research house, the key factors driving the softer performance can be attributed to slowing rental reversions, higher operating costs and dilution arising from equity fund raising exercises and issuance of units as payment for management fees.

"Within our SREITs sector coverage, overall DPU growth for 9MCY16 came in at -0.4% on a YoY basis. If we take into account significant one-off items, adjusted DPU would instead have declined by 0.5% YoY, based on our estimates," it said.

Moving forward, OCBC Investment Research believes unfavourable demand and supply dynamics across the various sub-sectors are likely to persist in 2017.

"Coupled with sluggishness in the macroeconomic environment, headwinds would continue to impact the performance of S-REITs, in our opinion. However, this would be partially buffered by rental leases which have been locked in with tenants for a period of time, thus providing some resilience to the income streams of REITs," it said.

The research house also added that it believes REIT managers have also adopted prudent measures to manage their interest rate and FX risks," it said.