Market overstating risks for Singapore REITs: analysts

Like most other property-related counters, Singapore-listed real estate investment trusts or REITs have been sold down in recent weeks amid the market volatility.

As one analyst puts it, the last time he looked, the buildings were still standing, the offices still occupied and owners still collecting rents in a robust economic environment.

But it appears that investors are not seeing REITS in the same positive light.

According to a Goldman Sachs index, Singapore REITs have fallen by 11.8 percent over the past two months.

That is a better showing than the 15.3 percent drop in its property stock index.

Analysts said a fearful climate has caused the market to under-appreciate the defensive qualities of REITs and overstate their risks.

Tony Darwell, Head of Asian Equity Research at Nomura Singapore, said: “When you look at say the Singapore office market, what we’ve seen is very, very strong growth in terms of capital value, but that strong growth in capital value has been driven by rents. We’ve not actually seen yields in the office market compressed.”

A case in point is K-REIT.

Its unit price fell by 20 percent over the last one month, while Keppel Land’s share price dropped by just 6 percent.

Analysts said they remain positive about Singapore REITs.

“There’s definitely risk in terms of outlook in the US, but given the supply demand dynamic over the next 12 to 18 months, given an expectation that rental and rental growth is likely to be relatively robust, some of the REITs in the offering – Guoco Commercial REIT, Macquarie Prime REIT, Capital Commercial Trust – look quite interesting at current valuation,” said Mr Darwell.

Analysts said REITs offer a much higher income payout than property stocks – often 100 percent, compared to 20 to 40 percent.

They also believe that Singapore-listed REITs are trading significantly below their current asset valuation.  – CNA/so

Source : Channel NewsAsia – 24 Aug 2007

Join The Discussion

Compare listings