S-REITs: Go Selective On REITs; Neutral
The S-REITs has been one of the best performers in 2012 (39% price return in FY12). We DO NOT think that S-REITs will be able to repeat its stellar performance in 2012.
In our view, S-REITs will find it challenging to complete yield-accretive acquisitions in 2013, given that property prices in most segments are already past their 2008 peak levels.
We also see limited opportunities for further positive rental reversions (3-8% DPU upside per annum) as rentals face more downward pressure in 2013, following looming supply and softening of business sentiments.
2013 is probably a year of consolidation for S-REITs that will warrant further yield compression of at most 30-40bps, translating to a maximum of 6-8% upside. Given the high price-to-book of S-REITs (1.14x sector-wise), we downgrade S-REITs to NEUTRAL from OVERWEIGHT.
For greater upside, we see more prevailing opportunities in developers (especially local high-end and diversified big caps) tha landlords. We also see heightened risk of equity fund raising for S-REITs in asset enhancements, redevelopment projects or/and sponsor injections.
Selectively, our TOP picks remain with the more defensible Retail and Industrial REITs, namely Starhill Global (SGREIT SP, BUY, TP SDG0.85), Capitamall Trust (CT SP, BUY, TP SGD2.29) and Ascendas REIT (AREIT SP, BUY, TP SDG2.60), that can expect to benefit from near-term DPU upside with asset enhancements and ongoing redevelopment projects.
We will advise investors to shun the more cyclical Office and Hospitality REITs.
Source: Kim Eng
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