RHB Research is still “Overweight on S-REITs, NEUTRAL on M-REITs with its top stock picks for the region which are Axis REIT in Malaysia and Ascendas REIT, Suntec REIT, and ESR REIT in Singapore.
It said that despite the impending interest rate hike, it believes S-REITs will still outperform, due to stronger growth prospects as the economy reopens, and better demand/supply dynamics, which underpin healthy rental reversions
In its Regional Sector Update, RHB said that M-REITs, on the other hand, will be plagued with an influx of new retail space, which should drag the overall sector’s performance. Given the robust demand from the technology and e-commerce sectors, industrial REITs remain our favourite
RHB said that although interest rate hikes are generally unfavourable to REITs, it thinks the impact is lesser for S-REITs given the expectation of a stronger economic rebound, as well as earnings growth for the sector.
It said that during the last US interest rate upcycle in 2016-2019, the FTSE REIT index registered an absolute return of 31% (or 9% return pa).
“As for M-REITs, we are more conservative, given the more muted recovery pace as rental reversions for both retail and office segments will likely be subdued, in view of the looming supply of commercial space in the market,” RHB said.
RHB said that it likes the industrial segment in the region. “While the Singapore Government is initiating a longer-term push to transform Singapore into a smart nation, the semiconductor and electronics industries in Malaysia and Singapore are fast expanding due to global demand,” it said.
