Positive economic forecast to inspire S-REIT revival

Singapore-listed Real Estate Investment Trusts (S-REITs) are expected to do well this year following a challenging 2023. Improved economic conditions and the Federal Reserve’s expected rate cuts are set to drive their outperformance, according to RHB.

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RHB equity analyst Vijay Natarajan anticipates the Federal Reserve to initiate benchmark interest rate cuts in the second half of the year.

This development is seen as a positive driver for S-REITs. Natarajan also highlighted strong economic growth projections for Singapore, noting that S-REITs, especially those focusing on office and hospitality assets, are well-positioned for a robust recovery this year since it capitalises on the improving market conditions.

“We continue to recommend investors to add on market corrections with a balanced mix of industrial REITs for stable yields, as well as a mix of office, hospitality, and retail REITs to ride on the recovery and rebound from the turn in the interest rate cycle,” he explained.

The next major rally for S-REITs is expected to start from the second quarter onwards, following the Federal Reserve’s policy rate reductions. After a period of caution over the past two years, institutional investors are also projected to re-engage with the S-REIT market. This is set to influence the sector’s recovery later in the year.

Natarajan predicts that S-REITs across various sectors will likely ramp up their acquisition activities in the latter half of 2024, facilitated by lower borrowing costs. In line with these positive forecasts, RHB maintains an “overweight” rating on S-REITs, with CapitaLand Ascendas REIT, Keppel REIT, AIMS APAC REIT, and CDL Hospitality Trusts identified as top picks.

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