Singapore-listed REITs trading below 12-month price targets set by analysts

Amid the market turmoil in the past half year, Singapore-listed real estate investment trusts, or REITs, have been under pressure.

They are now trading below their 12-month price targets set by analysts.

But market-watchers said that they’re optimistic REITs have not lost their appeal among investors and they expect the REITs sector to keep growing.

It’s been a honeymoon period since the first REIT was launched in Asia in 2001. Investors in the region, including Singapore caught on, seeing these trusts as a good play on the property sector.

But now, some investors said that REITs may have had their day in the sun, having sold off more than 15 per cent in value since last year.

Still, there are others who argue that the selling was overdone.

Todd Canter, CEO, LaSalle Investment Management Securities, said: “We think the sector traded off more than was justified. And in fact today, if you look at overall borrowing costs, which was the main concern for the stocks trading off, borrowing costs for the REITs remain essentially unchanged from the beginning of 2007.”

Some market-watchers said that a combination of a correction in the REITs market, plus the impact of the sub-prime crisis in the US, is unlikely to affect the performance of REITs in the long run.

They are positive that fundamentals continue to be relatively good for most real estate companies around the world.

But industry watchers said they’re confident REITs will continue to be attractive to investors despite the current cyclical correction in the REITs market.

Chris Reilly, Director of Property, Asia, Henderson Global Investors, said: “Even though it’s seen less interest than it has in the last couple of years when the market was healthier, it still has been very defensive. It’s been more defensive than property stocks in the last year to date. So, I think, obviously that still has a place within investor portfolios.”

Their advice to investors when considering REITs is to look at the quality of the management and underlying assets.

Peter Mitchell, CEO, Asian Public Real Estate Association, said: “The thing we have to remember about REITs is that they are a proxy for holding real estate directly. And the underlying real estate markets throughout Asia, the fundamentals of those markets remain very strong.”

Among the REITs in Singapore seen holding up well are those tied to the office property sector.

Some industry watchers said rising office rentals will continue to boost the performance of these trusts.

Retail and logistics REITs are also expected to perform well. – CNA/vm

Source : Channel NewsAsia – 2 Jun 2008

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