Moody’s sees negative rating outlook for Singapore REITs over the next 12 to18 months. Moody’s cited negative sentiment and tighter liquidity, which affected REITs’ access to the capital markets. The same report also states “high occupancy rates support yields and cash flows”.

Rating agencies lag the equity market. Rating agencies tend to lag the equity market as can be seen from the recent sub-prime crisis in the US. A good example is AAA ratings accorded to bond insurers when their solvency is in doubt. Many CDOs also obtained AAA, AA or A ratings when their risk profile made them unsuitable for many investors.

Financial performances for REITs are disclosed on a quarterly basis. Investorsare able to make an intelligent assessment on outlook for each REIT and do not need to be guided by rating agencies. There is conflict of interest inherent in their business, which could be subjected to regulatory changes in the US.

Gearing for Singapore REITs. The larger REITs with economies of scale, such as Ascendas REIT (industrial), CapitaCommercial Trust (office) and CapitaMall Trust (retail), are well supported by Singapore banks. Ascott, Frasers Centrepoint and K-REIT are able to tap onto established banking relationship of their sponsors CapitaLand, F&N Group and Keppel Corp.

Yields are more attractive now. The average distribution yield for Singapore REITs has improved from 4.00% in Jul 07 to 5.64% in May 08. Investors should take this opportunity to accumulate Singapore REITs to lock in the attractive yields.