SREITs – CIMB

Still safe

The first signs of more cash calls to come have surfaced. Whilesome REITs look vulnerable,the sector as a whole is in a much stronger capital positionthan in2008. Portfolio rationalisation is turningout to be a much less painful alternative.

We highlight KREIT, FCOT, ART and Suntec as having weaker financial metrics and as possible candidates for near-term cash calls. We maintain our Overweight position on the sector. CDLHT returns our top pick.

Short-term debt less pressing than before

We assess the capital structures of the sector in 2011 vs. the last crisis in 2008 and conclude that the key difference is significantly lower short-term debt, at 8% of total debt now vs. 38% in 2008. Even though sector asset leverage is not very different (36% in 2011, 34% in 2008), less-pressing short-term liabilities would reduce the likelihood of cash calls, in our view.

Portfolio rationalisation the new alternative

More REITs are recycling and raising funds through asset divestments rather than tapping debt and equity markets. This alternative is made possible by less-pressing impending debt expiries than before.

Top picks: CDLHT, AREIT and PLife

We believe REITs’ attractive yield spreads will remain supported by depressed risk-free rates over the next 12 months. We continue to advocate REITs with strong balance sheets and resilient earnings. Our top picks are CDLHT, AREIT and PLife REIT.