Changes source, adds details)
June 11 (Reuters) - Goldman Sachs said it remained cautious on U.S. Real Estate Investment Trusts and commercial real estate, as the worst was yet to come, given the rising capitalization rates, slowing growth rates and higher funding costs.
The brokerage said the REITs have outperformed the broader market so far, as investors have favored the group's average dividend yield of 4.4 percent and relatively stable cash flow growth.
But Goldman said the fundamentals are only starting to deteriorate and current valuations do not fully reflect the risk that growth expectations should moderate in second half of 2008 and 2009.
The brokerage, which continues to underweight REITs, said it expects a downside risk of 10 percent or more from current levels.
Goldman said it continues to favor long lease-term sectors such as regional malls and New York City office, and underweight short lease-term sectors like apartments.
It is also cautious on companies that derive a large portion of income from transaction-based activities such as development companies and merchant builders.
The brokerage upgraded shares of CB Richard Ellis Group Inc (CBG.N:Quote, Profile, Research) to "neutral" from "sell," saying the property services firm's valuation has become more attractive and the risk profile has improved.
Goldman cut its price target on the stock of Post Properties Inc (PPS.N:Quote, Profile, Research) to $32 from $36 based on its expectation that capitalization rates are likely to rise in the apartment owner's markets. The brokerage has a "neutral" rating on the company's stock.
The brokerage said its top "buy" ideas are Simon Property Group Inc (SPG.N: Quote,Profile, Research), Taubman Centers Inc (TCO.N: Quote, Profile, Research) and Vornado Realty Trust (VNO.N: Quote,Profile, Research).
Goldman's best "sell" ideas are AvalonBay Communities Inc (AVB.N: Quote, Profile,Research), Camden Property Trust (CPT.N: Quote, Profile, Research) and Liberty Property Trust (LRY.N: Quote,Profile, Research). (Reporting by Dilipp S. Nag in Bangalore; Editing by Amitha Rajan)
