REITS: Maybank-KE remains U/w on the REITs sector, cautioning that while SREITs have since fallen 12% year-do-date, the gloomy picture has not changed and economic risks are rising, adding that globally REITs de-rate during economic/financial uncertainty,
The house examines three periods of de-rating (2007, 2011 and 2015), and find commonality in rising risks to growth and tightening credit conditions. While balance sheets were sound in all three periods, 2015 has the added pressure of rising interest cost, USD strength eating into SGD returns, and oversupply of space, none of which were present in 2007 and 2011.
There are more reasons for SREITs to de-rate now than before. SREIT yields have climbed 9% year-to-date, compared to when they climbed 18% and 19% in 2007 and 2011, implying that we are
only half way through this de-rating.
Maybank-KE remains most negative on the retail sector, on back of faltering demand and rising competition, while neutral on the office sector and less negative on industrial.
Overall, the house is downgrading Suntec REIT (TP: $1.33), Mapletree Commercial Trust (TP: $1.10) abd Frasers Centrepoint Trust (TP: $1.61) to sell, and downgrading Mapletree Industrial Trust (TP: $1.43), Starhill Global REIT (TP: $0.69), Keppel REIT (TP: $0.88) and Cache Logistics Trust (TP: $0.97) to Hold. CapitaMall Trust (TP: $1.66) remains a Sell.