Office REITs: Nomura suggested to Buy office REITs as current weak hiring outlook in the financial services industry which occupies up to 48% of office REITs portfolio, could be a leading contrarian indicator and previous trend shown upside surprises.
Based on 2H15 Hudson Report, hiring expectations among financial services firms declined, only 21.9% of the respondents intend to increase hiring in 2H15 (vs 56.3% a year ago), a level that is comparable to the troughs seen at 2Q09 and 3Q12.
However, in the following 12 months of the two bearish quarters, actual increase in employment within the industry was 69% and 364% more than the preceding 12 months, respectively. In addition, unit prices of office REITs were up on average 100.1% and 16.8% respectively.
As such, the house perceived that hiring expectations may be more reflective of prevailing sentiments and could be a leading positive signal for office REITs.
Office REITs under the house’s coverage are expect to have CY15-16F yields of above 6%.
Top pick for the sector is CapitaLand Commercial Trust which has a Buy rating and TP of $1.56, supported by higher contribution from CapitaGreen.