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04-05-2013, 08:11 AM
The Straits Times
www.straitstimes.com
Published on May 04, 2013
Reits may be hit by tighter yields
Analysts prefer developers, especially those that have overseas exposure
By Alvin Foo
SHARES of local property developers, especially those with overseas exposure, are favoured ahead of real estate investment trusts (Reits), says Credit Suisse.
Reits could face tighter yields, analysts Yvonne Voon and Sing Ping Chok noted in a recent report. They said: "We still prefer developers to Reits."
Credit Suisse noted that property demand is shifting away from the residential sector into office, retail and industrial in the wake of the seventh round of cooling measures in January.
It warned that more of such tightening measures could come into play, "given the rising trend of foreign buying in the market and the risk of rising prices due to cost pressure".
While residential price growth has slowed down, office demand continues to surprise on the upside with 14 straight months of positive private net demand lifting the occupancy rate to 90 per cent.
Credit Suisse noted: "We expect office rents to be stable in the prime Grade A space, but potentially see downside risk for older offices."
Residential prices are tipped to stay relatively flat, but it expects a further 5 per cent to 10 per cent downside risk for the prime segment due to vacancy risks, given the oncoming supply and unsold units, compounded by weak rental demand.
Mass-market prices are expected to be slightly more resilient, supported by a relatively affordable price tag of less than $1.5 million, which seems to be "the sweet spot for upgraders and investment demand", Credit Suisse added.
Its analysts also warned that Singapore-centric developers could suffer from falling volumes and potential cost pressures.
They noted: "We expect residential prices to remain relatively flattish. Hence, we prefer developers with more overseas non-residential exposure such as CapitaMalls Asia (CMA) and Global Logistic Properties (GLP)."
CMA shares have gained just over 6 per cent thus far this year, closing at $2.06 yesterday.
GLP shares have inched up a mere 0.7 per cent this year, finishing at $2.80 yesterday.
One of the developers making headlines recently is CapitaLand, which reported a 41.2 per cent surge in net profit to $188.2 million for the three months ended March 31.
The stock tumbled six cents to $3.67 yesterday.
Maybank Kim Eng analyst Wilson Liew said: "We believe the sharpened focus in Singapore and China will underpin CapitaLand's growth going forward... Its diversified business model has shone through this quarter and we are positive on the sharpened focus under the new streamlined organisational structure."
He has a "buy" call on the counter with a $4.33 target price.
Reits have outperformed the benchmark Straits Times Index (STI) so far this year. For instance, the FTSE ST Reits sectoral index has surged more than 12 per cent, outgunning the STI's 6 per cent rise this year.
The Reit sector's surge, especially during last year, has led analysts to warn that yields could be hit by further compression over the year. Credit Suisse noted: "There could be more yield compression as Singapore Reits still provide a relatively attractive yield spread compared with other major Reit markets."
It estimated that total returns will be in the low- to mid-teen percentage levels, assuming a further 50 basis point compression to the current Singapore Reit average yield of 5.2 per cent.
Defensive Reits, such as retail and logistics ones, with a focus on acquisition, such as CapitaMall Trust and Mapletree Logistics Trust, are the broker's preferred picks. It warned of downside risk to office Reits due to increasing supply and industrial Reits in the light of weaker sectoral fundamentals.
alfoo@sph.com.sg
www.straitstimes.com
Published on May 04, 2013
Reits may be hit by tighter yields
Analysts prefer developers, especially those that have overseas exposure
By Alvin Foo
SHARES of local property developers, especially those with overseas exposure, are favoured ahead of real estate investment trusts (Reits), says Credit Suisse.
Reits could face tighter yields, analysts Yvonne Voon and Sing Ping Chok noted in a recent report. They said: "We still prefer developers to Reits."
Credit Suisse noted that property demand is shifting away from the residential sector into office, retail and industrial in the wake of the seventh round of cooling measures in January.
It warned that more of such tightening measures could come into play, "given the rising trend of foreign buying in the market and the risk of rising prices due to cost pressure".
While residential price growth has slowed down, office demand continues to surprise on the upside with 14 straight months of positive private net demand lifting the occupancy rate to 90 per cent.
Credit Suisse noted: "We expect office rents to be stable in the prime Grade A space, but potentially see downside risk for older offices."
Residential prices are tipped to stay relatively flat, but it expects a further 5 per cent to 10 per cent downside risk for the prime segment due to vacancy risks, given the oncoming supply and unsold units, compounded by weak rental demand.
Mass-market prices are expected to be slightly more resilient, supported by a relatively affordable price tag of less than $1.5 million, which seems to be "the sweet spot for upgraders and investment demand", Credit Suisse added.
Its analysts also warned that Singapore-centric developers could suffer from falling volumes and potential cost pressures.
They noted: "We expect residential prices to remain relatively flattish. Hence, we prefer developers with more overseas non-residential exposure such as CapitaMalls Asia (CMA) and Global Logistic Properties (GLP)."
CMA shares have gained just over 6 per cent thus far this year, closing at $2.06 yesterday.
GLP shares have inched up a mere 0.7 per cent this year, finishing at $2.80 yesterday.
One of the developers making headlines recently is CapitaLand, which reported a 41.2 per cent surge in net profit to $188.2 million for the three months ended March 31.
The stock tumbled six cents to $3.67 yesterday.
Maybank Kim Eng analyst Wilson Liew said: "We believe the sharpened focus in Singapore and China will underpin CapitaLand's growth going forward... Its diversified business model has shone through this quarter and we are positive on the sharpened focus under the new streamlined organisational structure."
He has a "buy" call on the counter with a $4.33 target price.
Reits have outperformed the benchmark Straits Times Index (STI) so far this year. For instance, the FTSE ST Reits sectoral index has surged more than 12 per cent, outgunning the STI's 6 per cent rise this year.
The Reit sector's surge, especially during last year, has led analysts to warn that yields could be hit by further compression over the year. Credit Suisse noted: "There could be more yield compression as Singapore Reits still provide a relatively attractive yield spread compared with other major Reit markets."
It estimated that total returns will be in the low- to mid-teen percentage levels, assuming a further 50 basis point compression to the current Singapore Reit average yield of 5.2 per cent.
Defensive Reits, such as retail and logistics ones, with a focus on acquisition, such as CapitaMall Trust and Mapletree Logistics Trust, are the broker's preferred picks. It warned of downside risk to office Reits due to increasing supply and industrial Reits in the light of weaker sectoral fundamentals.
alfoo@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
