Ditch REIT stocks in 2015, investors told

REITs have no earnings growth next year.

Smart investors should start selling REIT stocks now. According to CIMB, rising interest rates will cause REITs to lose big time next year, while banks will be the runaway winners.

CIMB notes that interest rates do jump by 100bp in the next 18 months, there is scope for the banks‟ earnings growth to exceed 13%, but REITs earnings will head the opposite way.

“Rising interest rates naturally attract the consensus “buy banks, sell REITs” strategy. We see no reason to differ. Both banks and REITs have been outperformers in 2014. We think the performance will diverge in 2015 i.e. banks will be the winners, and REITs the losers. REITs have no earnings growth and the office/retail REITs trade at 5.8-6.0% yields (3.5-3.8% above 10-yr SGS) on a 100%-payout. With retail rents now difficult to hike, the threat for REITs is negative DPU growth if interest rates rise substantially i.e. REITs offer the highest yields in the market but come with dividend downside,” noted CIMB.

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