Tuesday, September 8, 2015


SREITS: Deutsche Bank noted that SREIT have retreated substantially to yield compelling valuations, pricing in potential rate rise expectations and increasing sector volatility.

The sector is currently valued at 0.9x historical book and trades at 0.2 s.d. wider than the average yield spread over 10-year government bonds.

In addition, SREITs are trading 33bps wider than LT average spreads, pricing in a rise in interest rates slightly below the house's expectation for the 10-year yield to rise to 3.1% from 2.6%.

With a higher risk free rate at 3.1% and higher sector beta to account for greater volatility, TPs among REITs under coverage were reduced by 4-15%.

The research house thinks that medium-term fundamentals for the sector remain challenging with rising supply and declining demand, but sees limited downside to the sector, given strong yield support and undemanding valuation.

The house upgrades CCT, MCT and MLT to Buy from Hold, while top picks for the sector are MCT and CT.

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