111 views

Margin calls for S-REITs slim as large-cap demand persists

Investors have been worried as some of these holdings may be leveraged.

S-REIT investors need not to worry about the possibility of facing margin calls as large-cap stocks are finding greater demand despite the lower absolute yield, according to a DBS Group Research report. Average leverage ratios have also been conservative.

Investors, especially those having a larger concentration of non-institutional holdings, have been anxious on whether they could be facing margin calls. As some of these holdings may be leveraged, the current market sell-off might spark a margin call and cause a steep drop in prices when these investors liquidate their holdings.

Worried investors may have been zeroing in on smaller-cap S-REITs and possibly EUR/USD-based S-REITs, the report noted.

The report also found that most industrial REITS have only less than 1% of their portfolio revenues exposed to oil & gas firms, whilst office S-REITs’ portfolios are exposed to the sector by 4% to 8%.

Also read: S-REITs to generate yields despite economic weakness: analyst

DBS believes that the risk of a prolonged oil war may tighten profitability and cash flows for these firms in the future. “Whilst we do not anticipate mass weakness across the oil & gas sector, the exposure is noteworthy,” analysts Derek Tan and Rachel Tan said.

The panic over the fall in oil prices further clouded an already volatile outlook for S-REITs. Whilst the 50-bp FED rate cut brought a short-term respite to the sector, with FED funds rate at 1% to 1.25%, there is little room left to move down if the economy weaken further.

However, S-REITs’ yield spreads are expected to remain wide, which would keep incremental flows into the sector and valuations stable at current levels.

Join Singapore Business Review community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Event News

Event News