The Straits Times
www.straitstimes.com
Published on Jun 01, 2013
Invest
Buying opportunity after Reits rout
Analysts believe 9.3% plunge last month may be overdone
By Alvin Foo
INVESTORS in real estate investment trusts (Reits) here seem to have taken the old stock market mantra of "sell in May and stay away" to heart.
Singapore Reits were ravaged last month, mostly on fears that the United States Federal Reserve will be slowing down its massive monetary stimulus prematurely.
But analysts suggest the recent Reit rout may present a buying opportunity for several of these counters. They say the rush for the exit may have been overdone.
The bloodletting began last week, with the FTSE ST Reit Index slumping 4.5 per cent in those five trading sessions for its worst one-week slide since June 2009.
This was followed by a 5.2-per cent plunge this week as these worries intensified, leaving the index down 9.3 per cent for May.
The mayhem saw some Reit counters, such as Cambridge Industrial Trust and Fortune Reit, sinking 6 per cent in a mere day.
In a bid to kick-start the sluggish but now improving US economy, the Fed has been buying US$85 billion (S$107 billion) in bonds a month. This loose monetary policy is called quantitative easing (QE).
But global markets were rattled in recent days by Fed chairman Ben Bernanke's comments that the monthly bond purchases might be slowed down if US job rates show sustained improvement.
An abrupt end to QE and a rise in interest rates would hurt Reits, as it would increase refinancing costs and make it harder for them to raise funds.
However, several local analysts are not overly concerned.
"The concern is premature and we do not expect the Fed to cut back its bond purchases until 2014 versus the market's expectation of the second half of 2013," said Barclays analyst Tricia Song.
CIMB noted: "Our strategists and economists expect a more orderly rollback of QE closer to year-end, in conjunction with stronger US economic growth. They do not expect a one-off withdrawal or sharp withdrawal when the recovery remains fragile."
In addition, Deutsche Bank Markets Research believes the recent selldown reflected a re-rating of the Reit sector.
The sector's price-to-book ratio of 1.3 was above long-term averages of 1.1, it said. This is the ratio of the company's stock price to its book value, that is, what the company is said to be worth overall.
But analysts still say the sector is attractive for its defensive nature, given increasingly cautious market conditions.
CIMB noted: "The sector's defensive nature will hold up well in a tactically cautious environment, while debt maturity is fairly well-staggered to minimise the impact of any spike in interest costs on refinancing."
Barclays' Ms Song said: "We continue to believe that Singapore Reits' valuations are not expensive... we would accumulate on dips - our top picks are Keppel Reit and CapitaCommercial Trust."
CIMB sees buying opportunities for Ascendas Reit, Frasers Centrepoint Trust, Frasers Commercial Trust and Cambridge Industrial Trust.
Standard Chartered noted that in the recent first-quarter earnings season, retail landlords outperformed its expectations while hotel Reits saw revenue decline.
It noted in a May 8 report: "We believe valuations are not far from the peak, and we see just 10 per cent upside from here unless interest rates stay low for a prolonged period."
alfoo@sph.com.sg