JPMorgan says it’s reversing its cautious call on the Singapore REIT sector. It notes S-REITs have modestly underperformed the STI year to date, trading at 6.2% FY11E yield and 0.99X P/B.
“With the likely postponement of a number of equity fundraisings and the interest rate hike expectations in the current macro environment, we believe S-REITs sector should provide better risk-adjusted return given the strong yield support and stable growth.”
“With the likely postponement of a number of equity fundraisings and the interest rate hike expectations in the current macro environment, we believe S-REITs sector should provide better risk-adjusted return given the strong yield support and stable growth.”
It says capital structure is stable; “Interest cover for all the REITs under our coverage remains at above three times even if we assume a 20% decline in renewal rents and 100bps increase in borrowing cost for debt to be renewed in 2011.”
The house’s top picks for the sector are CapitaMall Trust (C38U.SG) and Frasers Centrepoint Trust (J69U.SG), “a clear preference for the retail REITs.”
It adds, “our call is largely predicated on the fact that Singapore domestic economy, especially retail spending and tourism arrivals, will retain its existing growth rate despite the current macro environment.”
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