The popularity of Singapore Real Estate Investment Trusts, or S-REITS, looks set to rise, given the expectations of a stronger Singapore dollar in the year ahead.
This follows the recent announcement by the Monetary Authority of Singapore (MAS) to allow the Singapore dollar to appreciate at a faster pace.
Mr Liu Jinshu, deputy lead analyst at SIAS Research, said: “If they expect the dollar to appreciate, of course there will be more interest in Singapore-dollar-denominated assets.
“Hence, REITS that are listed in Singapore and traded in Singapore dollars will benefit as well.”
S-REITS have often been referred to as “defensive” plays and analysts say they have held up well, appreciating by over 10 per cent in the first quarter of this year.
Research houses such as DBS Vickers and CIMB have earmarked their preference for certain S-REITS over other stocks.
DBS Vickers tips Mapletree Logistics Trust, Ascendas India Trust and Frasers Commercial Trust as S-REITS to accumulate ahead of dividend declarations.
CIMB favours CapitaMall Trust and Frasers Centrepoint Trust for their retail exposure and strong growth potential, while OCBC Investment Research prefers industrial REITS, which offer yields in excess of 8 per cent, to outperform.
However, analysts warn that selected REITS that have seen a significant increase in share price will now have lower yields.
And as more capital flows into Singapore in anticipation of currency appreciation, investing hastily into REITS has its drawbacks.
Mr Eli Lee, analyst at OCBC Investment Research, said: “One thing to be careful about is that most REITS are diversified geographically, so if they are taking their income from overseas, they would be penalised with a stronger Singapore dollar.
“I would be careful of how much of the news is already priced in, because the market is forward-looking and if an announcement has already been made public, then the market would have already moved to anticipate it.”
Analysts say investors should continue to maintain a diversified portfolio and look at investing for the long term.
“The best-value proposition of REITS is income, so investors who look for a steady dividend stream and payout could look at this option,” said Mr Lee.
“However, REITS do not offer capital protection. Investors with long holding power and who are less sensitive to REITS prices falling will be better off,” he added.
With macroeconomic uncertainties set to remain, S-REITS that offer a higher yield and more stable earnings outlook continue to be popular with investors.
Industry watchers say investments into S-REITS with an exposure to Indonesia and China are likely to increase.
Source : Today – 23 Apr 2012