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Upgrade to Attractive view from In-Line. In our view,
the market has not fully priced in the following: (1) the
positive impact from the current low interest rate
environment and falling credit spreads, and (2) the
resumption of growth for the S-REITs, either via new
asset enhancement works or acquisitions, providing the
next leg up for the sector. In our view, these are the
near-term drivers that could drive S-REITs to trade
towards our price targets versus our view that outright
outperformance of the developers is likely only to
materialize in the latter part of 2010.
CMT is our new sector top pick: We believe CMT’s
portfolio will benefit from the economic recovery and
influx of visitors from the opening of two new integrated
resorts, amongst others, in which 2009 will mark the
trough of this retail rent cycle. Our previous concern of
an oversupply situation is unwarranted, given that
upcoming supply being completed is either largely
pre-committed, is being completed in areas where there
are no comparable offerings, or where there is a clear,
visible demand for the space. We believe the key risk to
our Overweight call for CMT is the eventual impact of the
proposed listing of Capitaland’s retail assets into a new
vehicle, CapitaMalls Asia. We are also upgrading CCT
and Suntec to Overweight, ART to Equal-weight. We
remain Equal-weight on CDLHT and A-Reit. Our S-REIT
order of preference is CMT, CCT, Suntec, ART, CDLHT
and A-Reit.
Near-term positive catalysts include better operating
conditions and potential new acquisitions by S-REITs.
We now believe the retail and hospitality sector will
bottom in 2009; supported by improving economic
growth and the opening of two new integrated resorts in
Singapore. Any potential acquisitions should be viewed
positively as that would signal that credit is readily
available and that management teams are confident of
improving operating conditions and are repositioning
their vehicles for the next phase of growth.
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