How S-REIT stocks are affected by Fed's delayed tapering

Should investors be spooked?

According to CIMB, while the Fed tapering is delayed, interest rates remain on an upward bias. S-REIT yields could compress with the 10YSGB but investors should be mindful that S-REITs typically do not perform well in a climate of interest-rate uncertainty.

"We think that it is not where rates are at, but rather when will they stabilise and at what levels," CIMB said.

Here's more from CIMB:

S-REITs trade at c.396bp spread over the 10YSGB, 1x P/BV and FY14 yields of 6.3%, within the historical average – not cheap but also not expensive. For now, S-REITs look like a good trade, with those that de-rated the most in the last three months could also rebound the most.

Our preference remains in the developer space, where a diversified structure and much cheaper valuations (30% discount to RNAV in the sector, c.0.5 s.d. below mean) allow for more downside protection.

Firmer S-REIT share prices and more stable interest rates are also conducive for asset recycling growth. We see developer stocks as cheaper proxies to near-term asset reflation.

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