HK Landlords, downgrade on slowing 2014
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Eva Lee downgrading the sector today, as she sees lack ofnew demand in office; and retail having high co-relation between decliningresidential price reversing the wealth effect. We now anticipate office rent toweaken from 5 to 10% increase in 2013 to -5% to +5% YoY in 2014; retail to slowfrom 7-9% YoY in 2013 to flat to 5% YoY in 2014.

We also note threat of US 10-year treasury yield hike,UBSe an increase from 2.5% to 3.2% by Dec-14; REITs tend to be more sensitiveand underperform in such environment. We prefer landlords with diversifyearnings base, mitigating cap rate expansion with organic and expansionaryearnings growth.

On lower rental projections, we cut NAV c4%; PT c7%; andearnings +1 to -3%. We're more selective this cycle round, Wharf[$75.3->77.6] and Hysan [$42.7->41.1] are our only buys in the subsectorgiven highest prospects; LINK [Buy->Neut, $48.8->40.8], C-REIT[Neut->Sell, $3.44->3], HLG [Neut->Sell, $41.1->37.2] mostsensitive to rising rates.