Competition may hit returns of Singapore
Reits RETURNS from shares of Singapore's real estate investment trusts may decline, after a three-year rally, as investors switch to higher-paying Reits from Hong Kong, Malaysia and Thailand. The size of Singapore's property-trust market has expanded 14-fold to S$10 billion since the first one was set up in 2002, according to data compiled by Bloomberg. CapitaMall Trust and Ascendas Reit, the city's biggest, have given investors annual returns of as much as 50 per cent in the period. 'The easy money has been made,' said Teng Ngiek Lian, who manages US$650 million as chief investment officer at Target Asset Management in Singapore and bought CapitaMall and Ascendas Reit shares during their initial sales in 2002. 'Scarcity made Reits more attractive in the early days. I'm no longer as bullish.'
Singapore's six property trusts will soon face competition from as many as four Malaysian Reits and three in Hong Kong, including one that attracted US$76 billion of demand from investors before its initial public sale was delayed by a legal challenge last year. Singapore's Reits offered dividend yields as high as 8 per cent three years ago, according to Bloomberg data. Yields have since fallen to as low as 3.8 per cent, compared with a yield of 2.7 per cent for the government's benchmark 10-year bond. Trusts in Hong Kong, Thailand and Malaysia are offering higher yields to lure investors away from the more established markets in Japan and Singapore.
Hong Kong's Housing Authority plans to revive its US$2.7 billion property trust after the city's highest court last month dismissed a challenge against the sale. The trust, called Link Reit, offered a 6.65 per cent dividend yield to fund managers at its IPO last year. Kuala Lumpur-based Axis Real Estate Investment Trust Bhd, which sold shares this month, expects to offer yields of about 8 per cent this year and 8.63 per cent in 2006, according to its prospectus. Thailand's Central Pattana PCL, which plans to sell shares this year, will offer yields as high as 7.8 per cent, said DBS Group Holdings Ltd, which is managing the sale.
In Singapore, 'some of the Reit valuations have gone way ahead of the property valuation, so that should serve as a warning flag', said David Lum, an analyst at Daiwa Institute of Research Singapore Pte. Four of Singapore's six property trusts are trading above their book value, and two are trading at almost twice book value, according to Bloomberg data.
Some investors say Singapore's Reits still offer good value. 'We're generally looking at 10-12 per cent returns at very low risk. You can still buy Reits on that story,' said Chris Reilly, who helps manage more than US$200 million of Asian real-estate stocks at Henderson Global Investors in Singapore. - Bloomberg
My Comments
On Friday, we see the share prices of 3 REITs dropped the most amongst all the locally listed REITs and I think it's the impact of this article, which also appeared in the free paper, TODAY. FYI,
- CMT and A-REIT are the ones trading at almost twice book value
- CMT offers the lowest yield at 3.8% before Friday's drop
- CCT was aro' 4.3% yield before Friday's drop
Let's hope it's not the beginning of a broad based decline in REIT share prices!
2 comments:
ASIAN STOCK FOCUS:Singapore REITs Still Offer Good Value
By Kevin Lim
Of DOW JONES NEWSWIRES
SINGAPORE (Dow Jones)--Singapore real estate investment trusts have fallen off their peaks in recent weeks due to higher-yielding trusts coming out of Hong Kong, Malaysia and Thailand but the sector remains a buy, several analysts say.
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That's because S-REITs, as Singapore REITs are collectively known, have low-risk profiles and offer yields that are still higher than most Singapore investments. There are also potential gains from acquisitions and asset enhancements, they add.
Fund managers and retail investors also appear to agree with this assessment, submitting bids in excess of S$20 billion (US$11.9 billion) for Prime Real Estate Investment Trust's (P40U.SG) S$570-million initial public offering that closed last Friday. The value of applications received was the largest for a Singapore IPO since 1990, according to the local Straits Times.
Prime REIT, the seventh property trust to be listed on the Singapore Exchange, closed 7.1% higher at S$1.05 on its debut Tuesday, after rising as high as S$1.13. It shed 1.9% to S$1.03 Wednesday.
Prime REIT owns stakes in Wisma Atria and Ngee Ann City, two large office and retail developments in the heart of the Orchard Road shopping area.
"The expectations for capital gains have muted but S-REITs remain an attractive asset class compared to (Singapore) deposits and government bonds," says Grace Ho, who helps manage SG Asset Management's Asian Real Estate Dividend Fund. S-REITs are currently trading at estimated yields of 4.5%-4.8% for 2005, higher than the 1.7% to 2.1% payable on large fixed deposits and 2.9% yield on benchmark 10-year Singapore Government Securities.
While overseas REITs offer better returns, there are currency risks and the quality of assets and the regulatory environment may not be as good, Ho notes.
At an offer price of 98 Singapore cents a unit, Prime REIT provides an annualized distribution per unit of 5.12% for 2005 - above the distribution per unit for other S-REITs, but below the 6.3% yield offered by Thailand's CPN Retail Growth Property Fund (CPNRF.TH) and 5.75% offered by Malaysia's Axis REIT (5106.KU). CPN units were sold at 7% during their IPO while AXIS REIT's were launched at around 8%.
More property trusts are expected to come out of Malaysia and Thailand in coming months, while Hong Kong's Housing Authority is scheduled to offer its US$2.7 billion Link REIT before the end of this year.
During a briefing on Singapore REITs last week, JPMorgan's head of Singapore research Christopher Gee said that while the "supernormal returns" of up to 50% a year in the past two years are unlikely to be repeated, sustainable 8%-9% per annum rates of total returns (distribution plus capital appreciation) can be expected.
Regulatory Changes May Boost Returns
Helping fuel distribution per unit growth are pending regulatory changes that will allow REIT managers to increase gearing to 60% from the current 35% limit, allowing Singapore REITs to generate higher returns.
Another change will permit partial ownership of investment properties, subject to certain guidelines, making it easier for REITs to buy assets in neighboring countries where laws require overseas investors to have a local partner, Gee adds.
Merrill Lynch analyst Sean Monaghan says the DPU premium over government bonds in Singapore is in line with regional markets such as Japan and Australia, but growth prospects for S-REITs are better with opportunity to increase yields by enhancing current assets and through domestic and regional acquisitions.
"We expect all of the major S-REITs to announce international expansion initiatives over the next 12 months," he says.
Both Monaghan and Gee rate CapitaMall Trust (C38U.SG) and Ascendas Real Estate Investment Trust (A17U.SG) their top picks in Singapore, citing the potential for acquisitions that are yield accretive.
CapitaMall was last traded at S$2.36 Wednesday, down from its all-time high of S$2.66 in early August but up 34% since the beginning of the year; while Ascendas is now at S$2.18, down from its peak of S$2.38 in mid-August but up 28% since Jan. 1.
Turning to the large premium to book value that several Singapore REITs are trading at, which some investors describe as a "red flag," Gee says the premiums reflect, to some extent, the economies of scale and risk diversification from owing a large portfolio of different properties as opposed to a single asset.
Singapore REITs also possess a tax advantage over other forms of property investments, as earnings and dividends paid to local investors aren't taxed, giving valuations an automatic lift of about 20%, which is the city-state's corporate tax rate, he adds.
Citing CapitaMall as an example, Gee says the properties in the portfolio have been valued with implicit capitalization rates of between 5.8% and 7.8% at end-December 2004, even though cap rates - which are roughly equal to yields on the property - for investment grade shopping malls currently stand at 5.0%-5.3%.
CapitaMall subsequently said the properties in its portfolio have been revalued upward by 13% using "conservative" cap rates of around 5.5%-6.0%.
Not all investors are convinced, however.
"I think REITs will still be popular in Singapore for a while due to their higher yield in a low interest rate environment. We are, however, less bullish as we believe the 'easy money' era is largely over," says Teng Ngiek Lian, chief executive of Singapore-based Target Asset Management Pte. Ltd., which manages around US$700 million worth of investments in the region.
Teng says he believes the current 4.5%- 4.8% yield on S-REITs is very much fair value with little upside potential, unlike Hong Kong, where the economy is growing faster and REITs can offer greater rental revision potential.
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