S-REITS outperform broader Straits Times Index, analysts note more yield compression

Singapore’s Real Estate Investment Trusts (REITS) have outperformed the broader market so far this year rising 22 per cent compared to the benchmark Straits Times Index’s 14 per cent gain.

But analysts said such higher capital gains are adding pressure on yields.

Reaching higher are the average Distribution Per Unit from REITS.

On average, analysts noted that dividends grew 2 per cent from the previous quarter and 8 per cent year on year.

Volatile markets and a strong Singdollar have pushed investors to REITS, resulting in the FTSE Straits Times REITS Index outperforming the Straits Times Index.

An analyst at OCBC Investment Research, Kevin Tan, said: “A number of REITS are trading at a premium to their book values. This has caused analysts to downgrade some of the counters recently. As the unit prices continue to trade higher, we may potentially see more downgrades, which may depress the unit prices in the near term.”

So far, analysts noted the yields have contracted from an average of 7.3 to 6.6 per cent.

But analysts pointed out industrial REITS will continue to provide more attractive yields, compared to other sectors.

Equity research analyst at DBS Vickers, Derek Tan, said: “Sectors that have more third party opportunities would be in the industrial sector, given that the acquisitions tend to be more bite sized from that perspective, compared to the office or retail where the typical asset size of acquisition would be in hundreds of millions, kind of range, which would be relatively large versus an industrial REITS. Some of the REITS are sponsored REITS, with a visible pipeline. That would give the REIT the visibility in terms of inorganic growth prospects.”

Analysts said REITS managed by property developers may see more inorganic growth prospects.

This, as developers could take on a development and sell it back to their REITS at a more favourable price.

Source : Channel NewsAsia – 13 Aug 2012

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