Reits

Reits: Following the 2Q15 results, disappointments came mostly in hospitality. Earnings were uninspiring with downgrades for 41% of the REITs and the rest largely flat.

The biggest disappointments were in the hospitality sector which saw DPU downgrades of between 2.7% and 4.5%. Retail, Office and Industrial results were mostly in line.

Retail rent reversions slowed in 2Q15 due to the weak retail environment while REIT managers also took the opportunity to enhance tenant mix at several malls. Tenant sales continued to grow for the REITs with suburban mall exposure, similar to the trend seen in 1Q15. The more centrally located malls such as Paragon, Wisma Atria and VivoCity continued to experience weaker sales, declining 2.0-6.7% YoY.

Office market rents weakened while industrial reversions moderated. Office occupancies were stable at CCT and KREIT QoQ but weakened at Suntec. However, 2Q15 URA data showed a 2.6% decline in office rents, the biggest QoQ decline since 2009. As expected, industrial rent reversions remained low QoQ while occupancy improved for MINT, KDCREIT and AREIT.

CS believes that the retail sector is the most benign and have a preference for suburban retail REITs with OUTPERFORM ratings on CMT and FCT.

Amongst industrial REITs, house prefers KDC REIT (long wale and acquisition growth) and MINT (completion of BTS projects).