The REITs Pulsebeat - RHB Invest 2016-07-01: Back in Vogue

The REITs Pulsebeat - RHB Invest 2016-07-01:  Back in Vogue CDL HOSPITALITY TRUSTS J85.SI  CAPITALAND MALL TRUST C38U.SI  FRASERS CENTREPOINT TRUST J69U.SI  OUE HOSPITALITY TRUST SK7.SI 

The REITs Pulsebeat: Back in Vogue

  • We retain our optimism in the SREITs sector, maintain overweight recommendation. 
  • The sector has outperformed STI by 4.3% post Brexit as investors piled on defensive yield instruments. Despite recent run up we believe there is room for outperformance as we expect a benign interest rate environment and loose monetary policies to further compress yields. 
  • Among the subsectors, we like the retail and hospitality, mainly on their unbeatable earnings resilience and a recovery in the visitor arrivals respectively. 
  • Our Top Picks are CMT, FCT, CDREIT and OUEHT.



SREITs – safest place to hide. 

  • In times of high uncertainty, we think that the SREITs sector is attractive as it provides visible stable earnings to investors. 
  • With the fallout from Brexit still ongoing we expect global economies to maintain their loose monetary policy stance and expect U.S. Federal (Fed) Funds Rate (FFR) hike to be delayed than previously expected. This should keep interest rates low, benefitting REITs investors in the near term. 
  • We regard the SREIT sector as the most compelling regionally, as it displays the widest yield spread (4.42%) among its regional peers (average: 2.53%) preferring retail and hospitality sub sectors.


A further 50bps yield compression presents 8% upside to sector. 

  • S-REIT sector yield have compressed by 28bps since Brexit referendum. In comparison, yields for other safe-haven instruments like US (10-year bond), SG (10-year bond), US-REITs (average) and J-REITs (average) have compressed by 32bps, 13bps, 15bps and 8bps respectively. 
  • Currently, SREITs are trading at yield spread (over 10-year SG bonds) of 4.66%, closer to its 8-year average of 4.65%. We see room for further yield compression amidst increasing global uncertainties. 
  • Our study shows that a further 50bps compression in S-REIT yields corresponds 5.0% to an 8.3% upside to sector. Hospitality sector stocks seems to be the laggard in the recent run up (+0.7% over FSSTI) offering the highest yield spread of 5.7%.


Retailers are the most resilient. 

  • We maintain our view that positive rental reversion is here to stay for retail REITs. 
  • Our top pick among the retail REITs are CMT and FCT, as we are highly encouraged by its positive growth in tenants 1.0% sales 4.6% YoY and 2.1% YoY respectively suggesting their malls strong 0.0% positioning despite tough market conditions. 
  • We are not overly concerned about the impact of e-commerce businesses on CMT and FCT, as the REIT managers have been proactive in transforming the malls into more of a lifestyle destination.


Hospitality – A laggard turnaround play. 

  • We expect hoteliers to enjoy a better year this year as we expect 
    1. more business events, 
    2. and a stronger influx of tourist arrivals. 
  • We note that tourist arrivals numbers have been strong (+14.1% YoY) for the first four months, mainly driven by an influx of both the Chinese (+53.2% YoY) and Indonesian (9.6% YoY) tourists. This has translated to some stabilisation in the RevPAR (Jan-Apr) to -0.7% YoY. 
  • Our preferred picks in the segment are OUEHT and CDREIT.








Vijay Natarajan RHB Invest | Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-01
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