UBS Reports on Singapore REIT scene
PT adjustments following rise in spot risk free rate
PT revisions downwards by average -1.8%
We have moved the spot risk free in our DCF model to 2.9% for yr0-10, from
2.7% following recent interest movements. Our terminal rate (yr10+) is unchanged
at 3.6%.
Downgrade CCT and SUN
This move lifts our price targets downwards by -1.8% on average. Due to recent
price movements we have moved CCT from a Neutral 2 to a Reduce 2 and SUN
from a Buy 1 to a Neutral 1. We believe the office rental uptrend has been largely
priced in and it is increasingly difficult for these REITs to make yield-accretive
acquisitions domestically.
Overweight Industrial & Retail
Our key picks among the SREITs are 1. Mapletree (acquisition upside potential
not priced in) 2. Cambridge (re-rating potential & possible acquisition upside) =3.
Domestic retail - FCT and CMT (organic growth likely to continue to exceed
expectations). We maintain a Buy 2 on KREIT due to the strong expected rental
reversions which we believe have not been priced in.
Valuation
The sector continues to offer relatively attractive pricing currently, with a 4.3%
CY’07 yield, 6.0% ‘07-12 DPU growth, and 7.5% upside to our price target. We
recognise the expected S$5bn+ of capital raising in 2007 ($945m YTD) is likely to
provide a moderate headwind.
Here is the table for recent REIT price and yield movement:
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