Here's why you should not be bullish on S-REITs

FY14 yields are not so attractive.

CIMB analysts believe that the time is not yet ripe to be bullish on the sector. 

S-REITs’ FY14 yields are now at a c.396bp spread over the 10-year SGS yield, which is still within the historical average range. In a normal cycle, this would be attractive but not in the current rapidly rising interest rate environment. 

Here's more from CIMB:

Assuming that the historical average spread is maintained and the 10-year SGS yield rises to its 10-year high of 360bp (+90bp from now), we estimate that  S-REITs will have 12% downside from  their current share prices.

The market  may lower yield spread expectations despite the high bond yields but this will only happen if the rate of change  in interest rates stabilises- not now. 

On the positive side, average S-REIT  yield spread in the last 10 years was  420bp (+20bp from now) during periods of rising interest rates (close  to current levels).

At this juncture, we  think it prudent to factor in an additional 50bp buffer for yield  expansion, before revisiting the sector.  

This implies 7% equity downside, backed by 6.7% FY14 DPU yield. The sector trades at 1x P/BV, below its  historical average of 1.2x.