OCBC Investment Research 2015-07-21: Property Sector - Cautious on S-REITs; Reallocate To High-End and Growth Themes.

Property Sector: Cautious on S-REITs; reallocate to high-end and growth themes 


  • Cautious on S-REITs, capital reallocation is key. 
  • See deep value in high-end developers. 
  • Favour players in strong growth niches. 


Urge caution on S-REITs; advocate active capital reallocation 


  • Against the backdrop of an impending Fed lift-off and declining sector DPU growth, we believe the risk-reward of the S-REITs sector has turned unfavourable. 
  • From our quantitative analysis of the sector (including consensus DPU growth and forward yield pricing), we forecast that investors will reap almost zero total returns from now to end 2016 and – much worse – may suffer a rapid initial capital loss before subsequently recovering to par on dividend gains. 
  • We urge caution and recommend investors practice stringent bottom up stock picking within the S-REITs space, as well as active capital reallocation into high-end developers and real estate players in strong growth niches. 
  • Within the S-REITs space, our preferred picks are KDC REIT [initiate BUY, FV: S$1.24], FCT [BUY, FV: S$2.27], FCOT [BUY, FV: S$1.65] and SGREIT [BUY, FV: S$0.93]


(Eli Lee)

Source: http://www.ocbcresearch.com/





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