S’pore REITs holding up for now, but consolidation likely this year

The real estate investment trust (REIT) market appears to be holding up for now, despite the current cautious sentiment in the property market.

Strong dividend yields, on the back of rising inflation, continue to make Singapore REITs attractive to investors.

But industry watchers said these REITs are starting to feel the impact of the global credit crunch.

Marjan Van Der Weijden, Head, Structure Finance (Asia Pacific) Fitch Ratings, said: “We think that there’s potential for some of the REITs to leverage further, but it will have an impact on their income at the moment, because it’s simply more expensive to attract the funding.”

This is expected to weigh on the performance of smaller players in the market.

Analysts said that REITs with higher dividend yields are more likely to feel the heat.

Marjan Van Der Weijden, said: “REITs that are generating yields of up to 10 percent will find it harder to expand in the current environment because, generally, they only expand when they can find properties that generate yields to match that.”

First REIT, Cambridge Industrial Trust and K-REIT were among the trusts that had the highest dividends in the last 12 months, paying between 9 and 12 percent each.

Given the current credit crunch, analysts said it is unlikely that any new REITs will be launched this year. Instead, they expect some consolidation in the industrial REIT space.

Wong Yew Kiang, Property Research Analyst, CLSA Singapore, said: “I think the current environment is quite conducive because a lot of the REITs are trading at very high yields, and I think REIT managers are finding it very hard to give back shareholders more yield-accretive acquisitions.”

Smaller industrial REITs, that give up to 9 percent dividend yields, are expected to be possible targets for acquisitions.

Going forward, analysts said retail REITs are expected to outperform the rest of the REIT market. This comes as the space continues to be boosted by strong tenancy rates and long leases.

There are currently 20 REITS listed on the Singapore Exchange. – CNA/ms

Source : Channel NewsAsia – 5 May 2008

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