Even top-tier issues, including CapitaLand Ascott Trust (Clas), have been hammered down to their lowest levels in 2023 as investors run for cover. — The Straits Times
SINGAPORE: While the higher-for-longer outlook for interest rates has mauled stock markets, the real estate segment, and in particular the real estate investment trust (REIT) sector, has borne the full force of the sell-down this week.
Many Singapore-listed REITs, commonly referred to as S-REITs, are trading close to 52-week lows as US 10 and 30-year government bond yields climbed to their highest levels since 2007, following strong jobs data in the United States.
Even top-tier issues like CapitaLand Ascott Trust (Clas), ESR-Logos REIT, Frasers Logistics and Commercial Trust, CapitaLand Integrated Commercial Trust (CICT) and CapitaLand Ascendas REIT have been hammered down to their lowest levels in 2023 as investors run for cover.
Clas, for one, fell 2.7% to close at 91.5 Singapore cents on Wednesday, while CICT also ended 2.7% lower at S$1.78. Both counters last closed below those levels in late October 2022.
REITs have traditionally been investor favourites as they tend to pay out higher dividends than other listed issues.
In the REIT-heavy Singapore market, these trusts have yielded dividends averaging around 6% annually over the past 10 years, compared with about 3% for the broader market.
This is because REITs pay out 90% of their taxable income as dividends in order to qualify for tax exemption.
But the yield from dividends now seems to pale somewhat, compared with other risk-free money market opportunities such as government bonds and bank deposits, said analysts.
“I think the renewed hawkish tone of the Federal Reserve (Fed) in September is hammering home the higher-for-longer interest rate narrative,” said Thilan Wickramasinghe, head of equity research at Maybank Securities.
“This is shifting the yield curve higher for sure, narrowing the spread between the dividend yield of REITs and risk-free government securities.
“While valuations look cheap, they are not yet valued until a lower interest rate trend emerges.”
Bank fixed deposit rates are now well over 3.5%, while the yield for the latest Singapore dollar six-month Treasury bill jumped to 4.07%.
There is also the fear that REITs, which are heavily geared, could be burdened with significantly higher interest costs as rates stay higher for longer.
The Singapore Overnight Rate Average (Sora), the interest rate benchmark for housing loans and most consumer and corporate loans, remains stubbornly above 3.7%.
Banks generally charge a premium above Sora for loans.
While the Fed left its key borrowing rate unchanged at its September meeting, it is seen as likely to make at least one more rate hike later in 2023 as rising energy prices and a tight US labour market threaten to refuel inflation. — The Straits Times/ANN
