Despite reporting a firm set of financial performance in 2Q13 (growing top line and stable interest costs), we have seen Singapore REITs share prices remaining under pressure. The weakness in share prices seem to derive from fund outflows and heightened required returns rather than weakening fundamentals. While valuations for the sector appear more palatable at 1.05x P/Bk NAV, FY13-14F yield of 6.3%-6.7%, we believe that volatility is here to stay. There are potential downside risks if further hikes are seen. Our TPs are reduced by up to 10%. Further sensitivity analysis on the impact of further heightening in bond yields to 3.5%/4.0 and required returns (pegged to 2009 levels) implies further downside of up to 25% for most S-REITs. Some REITS, however offer value. Certain S-REITs have fallen below our bear case TPs, which imply that most of the negatives are already priced in. Selective BUYs in CDL Hospitality Trusts, Cache, Suntec and CapitaRetail China Trust.

SingTel has proposed to sell its 30% stake in OpenNet to NetLink Trust (SingTel owns 100% of NetLink) while remaining 70% stake in OpenNet of other partners - SPH, SP Telecommunications and Axia NGNetworks will also  be sold to Netlink in a deal worth a total of S$126m. Netlink is 100% owned by SingTel but run independently by CityNet so will be subject to regulatory approval. In effect SingTel gains additional 70% economic interest in OpenNet. This is too small a deal to make an impact. 

More importantly, SingTel has sought extension of another 4 years to reduce its stake in Netlink trust below 25% as per regulations by 2018 citing integration issues.  This means potential IPO of NetLink Trust (SingTel valuation S$1.89b) will be delayed. We continue to be neutral on SingTel due to weak regional currencies and low conviction about profitability of new digital life business.

Global Logistic Properties has pre-leased 24,000 sqm to a leading global consumer goods company at GLP Park Jiangning in Nanjing, Eastern China. With the signing of the lease agreement, GLP Park Jiangning is 99% leased.

China Environmentis placing up to 65m new shares at an issue price of S$0.2513 per share. The estimated net proceeds will be approximately S$15.9m will be utilised for supporting the growth of the Group's business, acquisition of fixed assets for production purpose and for working capital purposes.

Azeus Systems has received the approval to enter into three Standing Offer Agreements for the supply of IT professional services, with the Hong Kong Government for a fourth consecutive term.

Standard & Poor's Rating Services has affirmed Sabana Shari'ah Compliant Industrial REIT'BBB-' long-term corporate credit rating and maintained its stable outlook on the Trust. In its release, S&P notes that the rating reflects its expectation that Sabana REIT's steady rental growth and high occupancy rates will support its business risk profile.

The HSBC Flash China Manufacturing PMI recovered to 50.1 in August, the highest in 4 months, as new orders rebounded. The figure was an encouraging turnaround from July's 47.7 reading, the weakest in 11 months. It suggests that efforts by China to halt a slide in economic growth and fend off a potential credit crisis may be paying off. Meanwhile, the index of sentiment derived from a monthly Reuters survey of manufacturers rose by 3pt to +16 in August, which matched the level it was at in November 2010. A positive readings shows optimists outnumbered pessimists.

US markets rose after weekly jobless claims fell to 330.5k, the lowest in more than 5 years. The better-than expected HSBC Flash China Manufacturing PMI and Germany's manufacturing & services PMI also helped underpinned sentiment.

Source: DBSV