SINGAPORE real estate investment trusts (Reits) are poised to take advantage of lower commercial property prices to grow portfolios and boost dividends to shareholders, after spending over a year on the sidelines.
Singapore Reits, which own about US$34 billion of properties across Asia, have come through the financial crisis better than counterparts elsewhere and are well capitalised to weather potential risks from a shaky global economic recovery.
‘Reits offer good value for investors at current prices,’ said Roger Tan, vice president at SIAS Research, adding yields were attractive at double the levels seen during the property boom of 2007.
Singapore Reits currently give investors yields averaging 7.3 per cent compared with 2.5 per cent for 10-year Singapore government bonds and 3.5 per cent for 10-year US Treasuries.
Its Reit index has doubled since hitting a low in March this year, marginally outperforming a 92 per cent rise in the benchmark Straits Times Index, though still one-third off its all-time high in early 2008.
While residential property prices in Singapore have rebounded to their pre-crisis peaks, the recovery in commercial property has lagged and so is now ripe for a pick-up in activity and prices.
‘With the improved operating environment and easing credit conditions, the focus of Reit managers, regardless of asset class, has now shifted to making accretive acquisitions,’ Ascott Residence Trust CEO Chong Kee Hiong told Reuters.
For instance, Parkway Life Reit last month bought eight Japanese nursing homes for $78 million or at a net yield of 8.3 per cent, while its yen borrowing cost was 3.22 per cent, CEO Yong Yean Chau told Reuters.
‘Acquisitions will be a key driver for Reits heading into 2010,’ said BNP Paribas analyst Sandeep Mathew, who has an ‘overweight’ recommendation on Singapore’s Reit sector and ‘buy’ recommendations on Ascott, CDL Hospitality and CapitaMall Trust.
However, some analysts, including CIMB and OCBC Securities, are less upbeat on Reits, warning gains from acquisitions could be offset by the still uncertain global economy. Rentals for offices and factories are still soft and could face renewed pressure if a double-dip recession takes hold in the West.
While Asia’s Reit sector was hammered during the financial crisis when property values plunged and some banks and bondholders refused to roll over existing debt, Singapore’s Reit sector, the region’s third largest, refinanced about $5 billion of debt maturing in 2009.
Frankie Lee, who manages US$950 million of property stocks including Reits as co-head of Asia property equities at Henderson Global Investors, said he preferred Singapore Reits to their regional counterparts as they tend to be better managed and more diversified.
Investor demand for financial instruments that pay higher returns than the miserly interest rates currently given by bank deposits is likely to drive interest in the sector and enable Reits to raise new capital for acquisitions.
Sutha Kandiah, joint head of equity capital markets for Asia at UBS, said there are several Reits listings in the pipeline, although he declined to name the firms.
ARA Asset Management and Qatar’s Regency Group said on Monday they plan to launch the first Reit in Singapore that will comply with Islamic principles in the second half of next year.
Other IPOs in the pipeline include a commercial Reit from Temasek-owned Mapletree Investments that will include Singapore’s largest shopping mall Vivocity.
Source: Business Times, 16 Dec 2009
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