Yield Plays

AmFraser, Feb 4

HIGH-YIELDING plays such as S-Reits and business trusts have fallen out of favour among investors as the Fed begins to taper its monthly bond-buying programme.

Amid risks of a rising rate environment and potentially higher required rates of returns, we advocate a selective stance on yield plays, preferring yield counters that are able to deliver on both stability and growth.

Our top picks under our yield stocks coverage are Asian Pay Television Trust ("buy", target price: $1.04):, Frasers Commercial Trust ("buy", target price: $1.48), Hutchison Port Holdings Trust ("buy", target price: $0.85), Cache Logistics Trust ("buy", target price: $1.40) and Soilbuild Business Space Reit ("buy", target price: $0.87).

Underpinned by favourable underlying sector and macrodynamics, the aforementioned yield counters should look forward to enticing growth prospects, complementing their already defensive profile.

While we maintain our preference for yield stocks that are able to deliver growth organically, we perceive growth through acquisitions as an added bonus. Supported by comfortable debt headroom and visible acquisition pipelines, we are optimistic about the inorganic growth prospects of our top Reit picks, in particular.

We perceive minimal impact of rising interest rates on the projected distributions of the yield counters under our coverage.

Well-staggered loan maturities, manageable leverage levels along with proactive interest risk hedging strategies mean that the majority of S-Reits and business trusts should find themselves well placed to circumnavigate a higher interest rate climate.

BUY