Some market watchers are concerned about capital management, as the cost of debt of 3.2% is largely from SGD and Yen debt.
Elsewhere, JP Morgan points out that the upcoming reporting season should show further evidence of the widening gap between S-REITs that can deliver consistent DPU growth such as CapitaLand Commercial Trust (CICT) and Keppel DC REIT (KDCREIT) from the others. Those on a recovery path, in JP Morgan’s view are Frasers Logistics & Commercial Trust (FLCT), Mapletree Pan Asia Commercial Trust (MPACT), and Mapletree Logistics Trust (MLT), in the report dated July 15. It sees Mapletree Industrial Trust (MINT) as a REIT under pressure.
“We expect guidance on expected interest cost savings to moderate for S-REITs with more overseas assets/debt given more hawkish central banks outside Singapore. Valuations remain supportive, with yield spreads wide at 367bps versus the 328bps average since 2019, which helps mitigate some investors’ concerns over higher inflation/rates ahead,” the JP Morgan says.
Given inflationary pressures due to the volatile oil prices, JP Morgan suggests that the best strategy for investors is to position themselves with REITs such as CICT, trade-exposed REITs such as FLCT and MLT as growth fears ease, and at some point, MPACT.
See also: Banks’ fierce red-hot rally could cool but what has changed?
Although one- and three-month Sora have declined this year, the lower average cost of debt is likely to benefit Singapore-focused REITs such as CICT, Frasers Centrepoint Trust, KDC REIT, CDL Hospitality Trusts and Far East Hospitality Trust.
The Straits Times Index declined on July 16 and 17. Nonetheless, during the week of July 13-17 the STI rose by 40 points. This was due to analysts’ reports on the local banks indicating that the positives are known and probably discounted. That has caused the banks to retreat and/or consolidate following their red-hot rally which started in early July.
Support for the STI’s consolidation and/or retreat appears at the rising 50-day moving average which is acting at a support line, and is currently at 5,153. The eventual target remains at 5,740 for the time being.
