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S-REITs kept at 'neutral' by OCBC as rising yields cancel out improving fundamentals

PC Lee
PC Lee5/24/2018 03:16 PM GMT+08  • 3 min read
S-REITs kept at 'neutral' by OCBC as rising yields cancel out improving fundamentals
SINGAPORE (May 24): The S-REITs sector, using the FTSE Straits Times REIT Index (FSTREI) as a benchmark, is down 6% year-to-date at the close on Tuesday. Including dividends, the sector posted total returns of –3.4% year-to-date.
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SINGAPORE (May 24): The S-REITs sector, using the FTSE Straits Times REIT Index (FSTREI) as a benchmark, is down 6% year-to-date at the close on Tuesday. Including dividends, the sector posted total returns of –3.4% year-to-date.

“We believe this decline has been driven by concerns over a rising interest rate environment, as government bond yields have also seen a spike since the start of the year,” says OCBC Investment Research Andy Wong in a Wednesday report.

The Singapore government 10-year bond yield is currently at 2.67%, a relatively significant increase versus the 2.00% level seen as at the end of 2017. Given that the FSTREI is trading at a forward distribution yield of 6.0%, this implies that the yield spread against the Singapore government 10-year bond yield is 334 bps.

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