SREITs – Lim and Tan

S-REITS

• Bloomberg has a piece on the S-Reits sector this morning, saying it has been the best performing so far this year: averaging 37% (yield + capital gains), twice the gains in the US, UK and Japan, the other major reit markets. (S-Reits offer an average 6.,46% yield presently.)
  
• One of the reasons cited for this is the pace of acquisitions, accounting for a third of total acquisitions by reits in the region since 2009, second to Japan.
  
• The report also highlights the wide gap between yields of reits and 10-year government bonds: 413 basis points here vs 192 bp in Australia.
  
• While we remain bullish on S-Reits, we believe there are warning signs to look out for, especially when reits gain on every acquisition they make (eg the Mapletree Group of reits). Price to book will be the ratio to watch closely rather than the yield.
  
• For instance, retail reits like CapitaMalls trust, Fraser Centrepoint are trading at >20% premium.