Sunday, December 12, 2010

OCBC - Overweight SREITs

OCBC issued an OVERWEIGHT call on SREITs, an upgrade from NEUTRAL. The extract of the report is below:

Going into 2011, we upgrade our rating for the S-REITs from NEUTRAL to OVERWEIGHT. The persistently low interest rate environment is expected to stimulate the property market and continue to drive prices higher. Together with "hot capital inflows" pouring into Asia, it is likely that spot rental rates and asset prices will continue to be inflated. At the same time, many REITs managers are capitalizing on the recovery cycle for further asset enhancements initiatives and acquisitions. Being an inflation hedge, we think investors' interest in S-REITs is likely to remain piqued in 2011. However, we noted that different sectors may experience different rates of recovery. In our opinion, the recovery is likely to be more pronounced for the office sector, followed by the industrial sector as the catch-up potential is greatest for these two sectors. The retail sector is likely to remain subdued next year in view of new retail supply (additional 612k sq ft of lease-able retail space in 2011), moderate rental escalation as well as lesser spending power from foreign visitors affected by the appreciating SGD. Within our coverage universe, our preferred picks are MLT [BUY, FV: S$1.00], ART [BUY, FV: S$1.38] for large-caps and FCOT [BUY, FV:S$0.18], Starhill Global [BUY, FV: S$0.66] for small-caps.

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