REIT Yield - Merrill Lynch

Extracts fm ML Report dated 30-May-06 (click on the tables for a bigger picture),

Share price performance
The Singapore REIT sector has experienced average share price declines of -5% over the past month which is better than Singapore developers -10% and the Straits Times Index at -7%. The best performing REIT has been Ascott Residential Trust (ACTRF,– – –,1.14) and the worst has been Mapletree Logistics Trust (XHWAF,B-1-7,S$0.92).

Stable interest rate outlook
10 year government bond yields appear to have stabilized in both the US (circa 5.0%) and Singapore (3.50%) with the yield around 1.50% which compares to the five year historical average of 1.18%. We maintain our view that 10 year bond yields are peaking and that the US 10 year bond yield should decline in 2007.

Undemanding yield gaps
The Singapore REIT sector has an average FY06E DPU yield of 5.3% which compares with the Singapore government 10 year bond yield (risk free rate) of 3.50%. The yield gap of 1.80% is undemanding when viewed globally where REITs have traditionally traded at between 1.0% and 2.0% above their respective risk free benchmarks.

Preferred picks
Our preferred picks within the sector are Prime REIT (XHWAF,B-1-7,S$0.92), Suntec REIT (XHWAF,B-1-7,S$0.92) and Ascendas REIT (XHWAF,B-1-7,S$0.92). While we remain positive on the outlook for both CapitaMall Trust (XHWAF,B-1-7, S$0.92) and CapitaCommercial Trust (XHWAF,B-1-7,S$0.92) the pending capital raising could hold back the stocks.