Chart of the Day: S-REITs trade at 5.9% FY12 yield

There is potential downside room for another 70-90 bps compression.

Maybank Kim Eng reported:

S-REITs are presently trading at 5.9% FY12 yield and a yield spread of 463 bps. We think there is downside room for another 70-90 bps compression in view of the following two reasons:

The S-REITs’ average and stabilized long-term yield spread (excluding the GFC period) is around ~370 bps.

The effective cap rate for S-REITs is around 5.3%. If we take cap rates as the floor for FY12 DPU yield (since overall S-REITs sector trading at P/B of ~1x), there is another 70 bps for yields to be compressed further.

A yield-spread compression of another 70-90 bps equates to an average price appreciation of 13%-19% for the sector.

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