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Monthly Property Reports April 2008 Singapore Reits: Back to Reality
Monthly Property Reports April 2008 Singapore Reits: Back to Reality | Singapore Reits: Back to Reality |
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Reality has finally caught up with Singapore’s Real Estate Investment Trusts (Reits).
Singapore Reits: Back to Reality
by Greg Waldron
Although Singapore’s real property market shows little weakness, and many experts expect further gains, S-Reits have been hammered since the middle of last year, when news of America’s sub prime woes emerged. In early March retail Reit CapitalMall Trust was down 25 per cent from its 52 week high, business and industrial Reit Ascendas was down over 30 per cent, and Asia-wide logistics Reit Mapletree down over 35%. “Singapore Reits were spoiled by their success,” says David Lum, an Analyst at Daiwa Institute of Research. “They were launched at the bottom of the property market, and as the property and stock markets recovered Reits enjoyed several years of capital appreciation. A lot of investors were climbing aboard with the expectation that it was a secular growth story that would not hit a down cycle. Once they saw prices could correct, however, the short term players got out.” The silver lining of these sharp price falls is higher yields. Cambridge Industrial Trust, which taps income from 27 industrial properties, offers a dividend yield of 9.3 per cent, and is seen by investment bank Goldman Sachs as a possible takeover target for a larger Reit. First Reit, which focuses on healthcare properties in Asia, also has a yield above 9 per cent. Singapore’s biggest Reit, CapitalMall Trust, offers a yield just over 4 per cent. Although it could be argued that this is a good time to buy Reits given their sharp declines over the last 9 months, their high yields, and, perhaps, the chance of takeovers among smaller Reits, the outlook is murky, due in no small part to continued economic uncertainty. “Reits and the shares of property developers are seen as a proxy to the sector,” says Frankie Lee, fund manager of the US$791 million Henderson Asia Pacific Property Fund. “The market is quite quick to register anticipation, and this can influence volatility.” In other words, a sharp slowdown in Singapore consumer spending or exports will hurt both Reits and property shares. “The outlook for Reits depends on the resolution of the global external uncertainties,” says Daiwa’s Lum. “It depends on how the United States economy does, and whether or not there is more bad news on the economic front. There is a lot of uncertainty right now.” Longer term, however, the outlook is rosy for Singapore listed Reits. The Asia Pacific Reit survey conducted by financial services firm Trust Company and law firm Allens Arthur Robinson rated Singapore as having the best Reit potential in the Asia-Pacific – and by a considerable margin at that. The report cited Singapore’s good regulatory environment and strong safeguards for investors. “Regulatory support for Reits is strongest in Singapore (63 per cent better than average) Australia (50 per cent) and Japan (17 per cent),” says the report. “In Hong Kong and Malaysia support is only average and below average in Korea, Taiwan and China. Support is lowest in Indonesia, Vietnam and India.” In the nearer term there are also signs of positive sentiment. In a recent research report Investment bank Merrill Lynch had this to say: “Singapore Reits have high single digit dividend yields that are relatively secure due to long lease tenure, conservative balance sheets and exposure to the property sector’s strong fundamentals. We also expect the Singapore dollar to appreciate by as much as 5 per cent this year. In sum, this is a safe place to be.” |
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