Friday, January 3, 2014

Singapore REITs - Adjusting to the new normal (DBSV)

Singapore REITs - Adjusting to the new normal

• S-REITs to face rising cost of capital
• Prefer S-REITs with organic growth due to feweracquisition opportunities

S-REITs faced with rising cost of capital
We interpret theFED’s decision to begin tapering its monthly bond-buying programand at the same time keeping short-term interest rates low as asignal that “taper” and “rate hikes” are not synonymous events.As such, the yield curve will continue to remain steep, with rateson the longer-tenure 10-year bonds to remain elevated onexpectations of rising inflation.
This will mean that investors of SREITswill likely to require higher returns to compensate forthinning spreads against the 10- year bonds in 2014. However,with S-REITs trading at a yield spread of 4.0% (vs 3.5% historicalaverage), we believe that much of this risk has been priced in.

Delay of rate hike cycle a relief, risks of rising interest rate isminimised for now
With FED intention to keep shorter-terminterest rates low throughout 2014, S-REITs should only seemarginal changes in their refinancing activities, with limited impactto distributions. In addition, as most S-REITs have pro-activelyhedged up to 85% of their interest costs into fixed rates, risks onthis front is further mitigated.

Organic growth potential to differentiate the winners;acquisitions to take a back seat
We project distributions togrow by 5% in FY15F, driven largely from organic sources,supported by completing development activities. Acquisitions,once a main driver for distribution growth, are likely to remainselective as most S-REIT managers have highlighted (i) limitedopportunities available in the market at the right price and (ii)diminishing returns due to thinning implied S-REIT yields andphysical yields. We expect the market to turn more selective onacquisitions and S-REITs that require capital raisings in order topursue growth might find it tougher to raise funds, given risingcost of capital.

S-REITs are not identical; stick to growth. Despite an overhangon share prices due to expected rotation from yield-sensitivesectors like S-REITs, we believe that the market should not take abroad brushed approach but instead focus on underlyingfundamentals. Our picks remain S-REITs with superior growth orwith exposure in sectors leveraged to economic growth. CDL HT,Suntec REIT, CRCT, FCT and FCOT are our picks.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 02/01/14

No comments:

Post a Comment

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
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



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,
  • Selected Indexes 52 week range

  • Margin of Safety

    Investment Clock

    World's First Interactive Investment Clock