SINGAPORE (Nov 3): Credit Suisse analysts Sakthi Siva and Kin Nang Chik are maintaining their “underweight” rating on Asia Pacific REITs even as valuations have fallen 12% over the past three months and are trading at 1.23 times book value.

At these levels, REIT valuations are trading 4% above the lows of FY15, and 9% above the January 2014 lows following the S$10 billion (RM30.21 billion) tapering of the quantitative easing programme by the Federal Reserve.

This time around, the biggest declines were seen in Australia and Japan. In Australia, valuations fell from 1.48 times book value at end July to 1.22 times book value currently. For Japan REITs, valuations fell from 1.74 times in February to 1.53 times book currently.

More importantly, the lowest valuations were seen among Singapore REITs which fell from 1.02 times to 0.96 times book value, or 6% above the FY15 lows and below the lows of January 2014.

Furthermore, S-REITs reported a 3.62% gap between dividend yields and bond yields, which were “more attractive” than the 1.54% gap for MSCI Asia ex-Japan REITs, 2.48% gap of Australian REITs and 2.68% gap of Hong Kong REITs.

That said, Siva and Chik cautioned that the valuations were merely a “rough guide”. “Stock prices could easily overshoot previous troughs if the selloff in bonds proves to be more severe than anticipated,” warned the pair in a note on Tuesday.

The pair also added that despite the low valuations, Singapore’s corporate fundamentals remained poor, amid falling property prices and rising vacancy rates. — theedgemarkets.com.sg

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