● Following a 4.7% correction over the past week, MSCI Singapore P/B has fallen to 1.28x, below its previous Fed tightening lows
. With a dividend yield of 3.6%, MSCI Singapore now offers the highest yield in Asia ex-Japan.
● Stocks rated NEUTRAL or OUTPERFORM with a dividend yield that is sustainable and is above 3.5% include Venture, Keppel, SPH, SCI, SGX and SATS.
● Within S-REITs, we believe that retail REITs will be most resilient as they benefit from retail consolidation and exposure to suburban malls. Our most preferred are CMT and FCT. We also believe that Keppel DC REIT and Keppel Infrastructure Trust are defensive with cash flows supported by long-term contracts.
● We see the strongest headwinds for the office sector with a significant supply addition, and office REITs could be most significantly impacted by higher borrowing costs. Suntec REIT and CCT are rated UNDERPERFORM. We are also cautious on HPHT, as we estimate HPHT's real yield at 6.1%.
Retail environment most benign amongst S-REITs
Retail REITs are likely to benefit from retail consolidation as tenants move to better-performing malls that are close to transport hubs (e.g., Plaza Singapura, Westgate, Causeway Point and Northpoint). We believe that suburban malls will also provide more resilience in the weak overall retail environment. Our most preferred are CMT and FCT.
Keppel DC Reit and Keppel Infrastructure Trust have unique defensive exposure
Keppel DC REIT offers a unique exposure to the datacentre market, which is still in its growth phase driven by 'big data' and the rise in global internet users. Additionally, its portfolio WALE of 9.2 years is significantly longer than its industrial peers. Most of Keppel Infrastructure Trust’s assets are backed by long-term concession agreements of between 9.5 and 20 years with government-linked entities, providing good visibility to its near-term cash flow.
Office REITs and HPHT least preferred
Within Singapore REITs, we see the strongest headwinds for the office sector with 4.6 mn sq ft of space entering the market in 2016/17E
. Historically, net demand has averaged 1 mn sq ft p.a., which implies that occupancies could drop to 86.7% (-2.2 pp). The underperformance for the office REITs’ YTD prices in most of the risks on the sector (particularly for KREIT and CCT), however, prices could remain low as sentiment is likely to stay negative given the potential risk on occupancies in 2H15 with further pressure on rents/occupancy in 2016/17. Suntec REIT and CCT are rated UNDERPERFORM
. We are also cautious on HPHT
, as we estimate HPHT's real yield at 6.1% (adjusted for borrowing to hit its HK$0.34/share mid-range guidance). (Read Report)
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Source : Credit Suisse Asia Pacific Equity Research
Labels: Equity Strategy