S'pore-listed Reits back in popularity
Goh Eng Yeow
The Straits Times
Monday, Jun 30, 2014
Yield-hungry investors have rekindled their love affair with Singapore real estate investment trusts (S-Reits), as fears over interest rates hikes recede.
Their purchases have enabled the FTSE ST Reit Index to gain as much as 12.5 per cent since early February on the back of Reit prices climbing back to levels last seen 11 months ago.
That in turn helped the index outpace the benchmark Straits Times Index, which has risen 10.5 per cent over the same period. Outperforming stocks in the FTSE ST Reit Index include Suntec Reit, which is up 16.1 per cent, CapitaCommercial Trust, ahead 22 per cent, and Mapletree Commercial Trust, 16.6 per cent higher.
Still, despite the run-up, S-Reits are expected to continue to attract buying interest. Barclays Research noted yesterday that S-Reits have been tracking their United States brethren, which have also been enjoying a good run-up recently. S-Reits are attractive because of their yields.
Barclays noted that they offer an average yield spread of 3.6 percentage points over Singapore government bonds which currently pay investors a yield of 2.4 per cent.
Their yield spreads are also between 1.4 percentage points and 3 percentage points above what Reits in other developed markets are offering, Barclays added. But Barclays is expecting S-Reits to take a breather as US interest rates start to inch up. "Expectations for a firmer global growth recovery and rising US inflation in the second half could mean earlier than expected US rate hikes. Barclays Research now expects US 10-year bond yields to reach 3.4 per cent by mid-2015."
Concerns over the ability of local Reits to refinance their debts also appear to be receding. This had been the bugbear dogging the sector since the dark days of global financial crisis, Fitch's Ratings expects the credit profiles of the S-Reits rates to stay stable over the next 12 to 18 months.
It also noted that most S-Reits' loan-to-value ratios are under 40 per cent, lower than the 60 per cent debt ceiling imposed by the regulators.
S-Reits have also been able to get loans on an unsecured basis. With over 80 per cent of their assets staying unencumbered, this gives them flexibility in refinancing.
One potential dampener is the pressure some Reits may encounter as the supply of floor space outpaces demand and put pressure on rental growth and occupancy rates. But Fitch is confident that most S-Reits will still be able to enjoy "positive lease rental revisions", as the expiring leases for most properties are below market rates.
However, the icing on the cake for investors may be the scope for S-Reits to make use of cheap funding to acquire more assets to boost returns.
DBS Vickers noted in a report last month that "growth remains a key motivator for S-Reit managers". The market would reward S-Reits with stronger growth prospects by giving them higher valuations. As such, it expects those with visible acquisition pipelines to be more active than others. Given the dearth of acquisition opportunities in Singapore, it believes that more Reits would make further inroads overseas.
This article was first published on June 28, 2014
http://business.asiaone.com/news/spore-l...popularity