Industrial REITs outperform despite market volatility

Real estate investment trusts (REITs) have outperformed the market despite the volatility in the first half of the year.

They are also known for their relative resilience amid economic downturns.

And industrial REITs appear to hold up better than the rest with total returns of 18 per cent in the first quarter.

REITs have outperformed other assets like equities since the start of the year.

The benchmark REIT Index rose 5.2 per cent on-year to date, compared to the key STI index’s 2.7 per cent increase.

Among the best performers were office REITs which made a strong comeback after being sold down late last year over concerns of oversupply.

But analysts say industrial REITs offer better earnings visibility going forward.

Tey June Teng, investment analyst at SIAS Research, said: “According to URA data, we still see some growth in the prices and rentals of industrial space in the first quarter. Generally, all the industrial REITs on average have two to three years weighted average lease expiry profile. We expect that their earnings will be quite stable in the next one to two years.”

Beside price gains, industrial REITs are attractive because of the relatively high dividend yields.

That adds to the total return of an industrial REIT to a handsome 18 per cent in the first quarter of the year.

Despite the global downturn, REIT managers such as Sabana appear to be in a good position to expand their portfolio.

Sabana Real Estate Investment Management’s CEO, Kevin Xayaraj, said: “We have about S$100 million of debt headroom to fund our new acquisitions this year. We will be selectively buying this year in Singapore, and if we were to succeed, then I think the impact of these potential new acquisitions will come in this year or next year.”

But investors should beware that not all REITs are equal.

Ti Wee Pang, analyst at DMG & Partners Research, warned: “Overseas REITs will have a higher risk because they will expose investors to currency fluctuations. When investors invest in these REITs, they will also have to analyse carefully what industries they are involved in and the political stability in those countries.”

Industrial REITs with a predominantly Singapore-focused portfolio include AIMS AMP Capital Industrial, Sabana, Cache Logistics and Cambridge Industrial Trust.

Source : Channel NewsAsia – 6 Jun 2012

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