S’pore REITs raising gearing levels to grow acquisitions

Singapore’s real estate investment trusts (REITs) have toughened up and are ready to hit the acquisition trail, according to analysts.

The country’s REITs have recapitalised their balance sheets and refinanced debt, which will put them in a better position to grow this year.

After a difficult 2009, REIT managers have lowered their gearing levels.

But observers said the REITs are now comfortable with raising their debt to assets going forward.

With the Singapore economy staging a strong comeback from last year’s recession, observers said the REITs are acquiring aggressively again.

Last year, the sector’s value plunged 60 per cent and debt levels sky rocketed.

“They are acquiring properties, assets, largely because they view the outlook as stable. And the capital market is very liquid, so the access to funds is there. They are adjusting their gearing target ratio slightly upwards,” said Loy Wee Khim, associate director at Standard & Poor’s.

Analysts estimate that the average gearing levels for the REITs are set to move up from around 31 per cent currently, to up to 39 per cent in the near term.

This is because the REITS are more comfortable with their capital positions and could raise more debt to fund expansion.

But there are some uncertainties on the horizon.

“In terms of returns, we are looking at 10 per cent returns over the next 12 months. Macro economic concerns are on the front seat again so we’re seeing a lot of volatility. What we’re thinking is that investors will probably ascribe a higher risk premium on the REITs in the near term,” said Meenal Kumar, an investment analyst with OCBC Investment Research.

In the light of that, OCBC has a ‘neutral’ weighting on the sector and is recommending a defensive stance, with its top picks as Ascott Residence Trust, Fraser Centrepoint Trust and Mapletree Logistics Trust.

Standard and Poor’s, on the other hand, said its outlook on the sector is ‘stable’.

Source: Channel News Asia, 31 May 2010