S-REITs saw a broad-based selldown last Thursday, alongside a rise in
bond yields after Ben Bernanke’s statements. While an abrupt end to
QE will impinge negatively on REITs, our strategists are expecting a
more orderly rollback. We see room for bargain hunting.
We retain our Neutral call on
Singapore property stocks but are
now more positive on the sector
compared to three months ago. We
make no changes to our regional
picks, with ASEAN being our
preferred region (Malaysia, Thailand
Selldown across REITs
SREITs saw a broad-based selldown
last Thursday (23 May), alongside
rising bond yields after Ben
Bernanke’s statements left the market
speculating that QE measures may be
withdrawn earlier than expected. The
sector now trades at a spread of
400bp, just a shade below the
long-term average of 409bp, after
both bond and REIT yields rose.
An abrupt end to QE and sharp spike
in bond yields would impinge
negatively on REITs given their
impact on spreads and refinancing
That said, our
strategists/economists expect a more
orderly rollback of QE closer to
year-end, in conjunction with
stronger US economic growth. They
do not expect a one-off withdrawal or
sharp withdrawal when the recovery
At current spreads,
we think that the expected marginal
pick-up in yields from current low
levels should leave SREITs attractive
The defensive nature of the sector will
hold up well in a tactically cautious
environment while debt maturity is
fairly well-staggered to minimise the
impact of any spike in interest costs
Further out, improved
economic growth (sparking any QE
withdrawal) should feed into rental
increases for REITs, particularly for
those with shorter WALE.
Room for bargain hunting?
SREITs have climbed up 7% YTD and
it is hard to tell if the selldown is over.
That said, we see buying
opportunities in AREIT (O/P), FCT
(O/P), FCOT (O/P) and CREIT (O/P).
Valuations for Suntec (Neutral), MCT
(Neutral) and CMT (U/P) have turned
more palatable after the selldown.
Indian developers were the main
laggards last week, with Unitech
falling 16% and DLF down 15%.
Regional REITs suffered from
profit-taking after Bernanke’s
statements, with benchmark REIT
indices in both Singapore and Hong
Kong down 4%. (Read Report)
Source : CIMB Research
Labels: Ascendas REIT, CapitaLand Mall Trust, Frasers Centrepoint Trust, Frasers Commercial Trust, S-REITs, Suntec REIT