Singapore REITs on Foreign Jaunts Outperform as Home Market Stutters

May 15, 2014 Leave a comment

Singapore REITs on Foreign Jaunts Outperform as Home Market Stutters

By Andrew Toh on 02:59 pm May 09, 2014

Singapore has 33 trusts on the stock exchange and the S-REIT index gained 6 percent year to date. (Reuters Photo/Edgar Su)

Singapore. Real estate investment trusts in Singapore with growing exposures overseas in places like China, Japan and Australia are bucking the trend of lower returns at home where the city-state’s market has been slowing.

Known as S-REITs, the $49 billion sector, Asia’s second-largest after Japan, fared poorly in 2013. Jitters about the end of the US Federal Reserve’s stimulus program and a series of moves by the Singaporean government to cool the property market raised concerns the trusts would lose their appeal to yield-hungry investors.

Those worries have not subsided as evidenced by South Korea’s Lotte Shopping’s decision last week to postpone the listing of a $1 billion trust in the city-state.

But the drive by many REITs to focus on overseas purchases means those that have made foreign ventures have seen their results surprise on the upside this earnings season.

“If you want something with a higher yield injected into your portfolio, you want to look into other markets outside Singapore,” said Desmond Sim, head of CBRE Research. “You definitely want to look towards Tokyo and Australia where there are more established, mature markets.”

Average distributable income, the earnings that are distributed to REIT unit holders, for the January-March quarter among the REITs that have made overseas acquisitions in the past year, grew 9.1 percent, compared to 7.9 percent the same period last year.

By comparison, average distributable income of the wider REIT sector rose 5 percent in the March quarter, down from a 10.7 percent gain the previous year.

Ascendas REIT, Singapore’s largest industrial property trust, is among the major outperformers. It saw distributable income rising 21.9 percent in the latest quarter, helped by the acquisition of a business park in Shanghai last year.

CapitaRetail China Trust, with a portfolio of 10 shopping malls in China, also reported a 13 percent rise in distributable income, close to three times its growth in the same period last year.

Domestic lag

Singapore has 33 trusts on the stock exchange and the S-REIT index gained 6 percent year to date, versus a 5.6 percent rise in wider real estate stocks and a 2.5 percent gain in the benchmark Straits Times Index.

REITS are popular with investors as they can offer higher yields than regular property stocks through tax-exempt dividends and a requirement to distribute at least 90 percent of taxable net income to unit holders.

However, REITS focused on the Singapore domestic market, particularly those in business parks away from the central business district, face a tougher outlook.

Standard Chartered forecasts business park rents to be flat within the next two years and said last month that tougher foreign-worker rules might prompt banks and IT companies to relocate some operations overseas.

They cited Viva Industrial Trust as one trust that might see a squeeze on earnings, downgrading its price target by 5 percent.

Viva said in a statement it is confident about its portfolio, which is “backed by quality assets with high-quality tenants”.

Shares in CapitaRetail have gained 11.3 percent so far this year, while Mapletree rose 7.4 percent. Viva gained 1.9 percent during the same period.

 

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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