Tuesday, September 3, 2013

S-REIT : Not time to bottom-fish yet (MKE)

 ▪ S-REITs are currently trading at FY13F yields of 6.6%, above its historic average of 6.3%. While yields appear attractive, we think it is still early to enter the market at this juncture.

▪ We expect further volatility in the bond market, especially with several macroeconomic uncertainties facing the United States and the global economy as we head into September, namely: (1) possible QE tapering during the upcoming FOMC meeting on 17-18 Sep, (2) budget debate in Washington, (3) Germany election, and (4) imminent U.S. strike on Syria.

▪ Market overhang now lies with impending hikes in interest rates and the possible recalibration of over-inflated property prices – which can drag down NAV. In terms of sector trough valuations, we will advise investors to relook at the S-REITs space at DPU yields of 7% and above on average for the sector. This is pegged to a historic yield spread of 380 bps and longer-term risk-free rate of 3.0-3.5% (Currently 2.7%). This implies further price downside of at least 7%. Maintain UNDERWEIGHT on the overall sector.


Not time to bottom-fish yet. S-REITs are currently trading at FY13F yields of 6.6%, above its historic average of 6.3%. While yields appear attractive, we think it is still early to enter the market at this juncture. We expect further volatility in the bond market, especially with several macroeconomic uncertainties facing the United States and the global economy as we head into September, namely: (1) Possible QE Tapering during the upcoming FOMC meeting on 17-18 Sep1. (2) Budget debate in Washington (3) Germany Election (4) Imminent U.S. strike on Syria.

The U.S. central bank, which meets again in September, should have more evidence about the economy and inflation before it can make a decision. Nonetheless, there is a growing belief that individual data points do not really matter at this point and that the Fed has made up its mind to stop the bond purchases by the middle of next year. With a high 92% correlation with the US 10Y Govt bond yield, we expect SG risk-free rate to continue to be volatile, which impacts REITs.

Defensiveness of S-REITs unattested? We charted the total returns of the FTSE REIT Index vis-à-vis the Strait Times Index. Noticeably, S-REITs fared poorer than the benchmark during GFC period (2008-2011). It was also more beaten down, compared to the other defensive sector - Telcos.

S-REITs witnessed a strong bull market from 2003 to 2007, when they were priced as growth stocks; We have also seen S-REITs fall from grace during the GFC of 2008/2011, when they were priced at fire sale levels. Commonly cited reasons then were (1) over-leveraged balance sheet (gearing levels of 40.7% at the height of GFC compared to 32% in 2Q13), (2) bulk of the financing then was through commercial mortgage-backed securities (CMBS) and relatively short-term bank loans, and (3) chunky credit refinancing

More balanced expectations now. Nonetheless, investors have come to accept that while S-REITs are unlikely to repeat the early hyper-growth years (2002-2007), their business models are not as fragile and unsustainable as predicted by doomsayers. REIT managers have witnessed first-hand the dangers of an over-leveraged balance sheet and a lumpy debt maturity profile. As of 30 Jun, most S-REITs (with the exception of four of them – KREIT, MAGIC, MCT, ART) limited their gearing to less than 40% and have taken advantage of the low interest rates to spread out their debt maturities. Compared to pre-GFC period, S-REITs now have access to a wider range of financing sources, such as multi-currency medium-term notes programmes, the Singapore dollar bond market, retail bonds and even perpetual securities.

Entry point pegged at 7% yield. We think that current fundamentals for S-REITs are definitely more sound than GFC days, but the market overhang now lies with impending hikes in interest rates and the possible recalibration of over-inflated property prices – which can drag down NAV (See Figure 4 on the extent of “QE-inflation” on industrial property prices2).

On a segmental basis, we reiterate our downbeat stance on Industrial REITs, as asset prices have the most room to fall, given how much they have escalated over the past four years post GFC. In terms of sector trough valuations, we will advise investors to relook at the S-REITs space at DPU yields of 7% and above on average for the sector. This is pegged to a historic yield spread of 380 bps and longer-term risk-free rate of 3.0-3.5% (currently 2.7%). This implies further price downside of at least 6.5% for the whole sector, with the most downside for industrial.

Maintain UNDERWEIGHT on the overall sector. If you will like to park funds, our preference is only on Suntec REIT which has forecasted DPU growth of 12.5% from 2012-2015, largely from the makeover of Suntec City, whereas other REITs have relatively limited growth. Downside risk to our sector call stems from a delayed QE tapering by the Fed due to Syria and debt ceiling worries.


Source/Extract/Excerpts/来源/转贴/摘录: MKE-Research,
Publish date:02/09/13

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Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
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做自己熟悉的事,等到发现大好机会才投钱下去

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“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

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高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
曾淵滄-散户明灯
每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
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