According to UBS improving prospects for the REIT sector in the second half of 2018 are due to:
- Key yield sectors such as banks have more downside risk
- Ten year bond yields will remain around current levels of 2.9%.
- A potential capital return of $7 billion from the sector
As REITs are seen as bond proxies, rising bond yields can be negative for share prices. REITs pay distributions that support a predictable and reliable dividend stream. During times of low returns from bonds, REITs are seen as an alternative. Bond yields remaining around current levels will stabilise prices of REITs.
UBS believes that Scentre Group (SCG) will see an upturn in speciality retail sales on the back of recent strong employment growth, tax cuts, improving household cashflows and strong population growth. The discount to Net Tangible Assets of 5% is likely to be narrowed due to asset sales allowing acceleration of the buyback and the latest sales evidence with Blacktone's Top Ryde sold for $700 million.
