Singapore reits focus offshore for higher returns

PUBLISHED : Wednesday, 14 May, 2014, 5:04am
UPDATED : Wednesday, 14 May, 2014, 5:04am

Real estate investment trusts in Singapore with growing exposures overseas in places such as China, Japan and Australia are bucking the trend of lower returns at home where the city state's market has been slowing.

Known as S-reits, the US$49 billion sector, Asia's second-largest after Japan, fared poorly last year. Jitters about the end of the US Federal Reserve's stimulus programme and a series of moves by the Singaporean government to cool the property market raised concerns the trusts would lose their appeal to yield-hungry investors.

Those worries have not subsided as evidenced by South Korea's Lotte Shopping's decision last week to postpone the listing of a US$1 billion trust in Singapore.

But the drive by many reits to focus on overseas purchases means those that have made foreign ventures have seen their results surprise on the upside this earnings season.

"If you want something with a higher yield injected into your portfolio, you want to look into other markets outside Singapore," said Desmond Sim, the head of CBRE Research.

"You definitely want to look towards Tokyo and Australia, where there are more established, mature markets."

Average distributable income, the earnings that are distributed to reit unit holders, for the January-March quarter among the reits that have made overseas acquisitions in the past year, grew 9.1 per cent, compared with 7.9 per cent the same period last year.

By comparison, average distributable income of the wider reit sector rose 5 per cent in the March quarter, down from a 10.7 per cent gain in the previous year.

Ascendas Reit, Singapore's largest industrial property trust, is among the major outperformers. It saw distributable income rising 21.9 per cent in the latest quarter, helped by the acquisition of a business park in Shanghai last year.

CapitaRetail China Trust, with a portfolio of 10 shopping centres in China, also reported a 13 per cent rise in distributable income, close to three times its growth last year.

Singapore has 33 trusts on the stock exchange and the S-reit index gained 6 per cent year to date, against a 5.6 per cent rise in wider real estate stocks and a 2.5 per cent gain in the benchmark Straits Times Index.

Reits are popular with investors as they can offer higher yields than regular property stocks through tax-exempt dividends and a requirement to distribute at least 90 per cent of taxable net income to unit holders.

However, reits focused on the Singapore domestic market face a tougher outlook.