Moody’s still negative on outlook for Reits

PROSPECTS for real estate investment trusts (Reits) in Singapore remain challenging as there will be a greater supply of office, industrial and retail space coming onstream, said Moody’s Investors Service yesterday.

The rating agency kept its outlook for the sector over the next 12 months negative. This places it at the bearish end of the scale compared with two other research houses – DMG & Partners has a ‘neutral’ rating on Reits and OCBC Investment Research recently upped its call to ‘overweight’.

Moody’s was particularly concerned about the influx of office, industrial and downtown retail space at a time of unexceptional economic growth. Its sovereign unit estimates that Singapore’s GDP will expand by around 5 per cent this year.

‘This is below the average GDP growth of 8 per cent from 2004 to 2007 and will not be adequate to absorb the strong increase in supply of commercial properties that was planned before 2008, based upon the then much higher economic growth rate,’ it said in a report.

According to Moody’s, around 6.6 million square foot of new office space will enter the market between this year and 2012. While landlords have managed to secure tenants for more than 30 per cent of the new supply, there will still be pressure on occupancy and rents over the medium term, it said.

When it came to the retail sector, Moody’s was more worried about rents at Orchard Road. This is because about 3.7 million sq ft of new space will be ready in the next two years, some of it at the two integrated resorts.

Moody’s acknowledged that most Reits have been rather resilient and have turned in stable results. But ‘pressure on earnings may increase in 2011 when new supply comes on stream across all property segments if demand is not increased’, it said.

Not all market watchers shared Moody’s view completely. DMG analyst Jonathan Ng agreed that office Reits would face a tougher time as rents continue to slip, but he was neutral about prospects for retail and industrial Reits, and positive on hospitality Reits’ performance.

Mr Ng was not particularly concerned about new retail space coming onstream as pre-commitment rates have been strong.

In a March 4 report, OCBC Investment Research upgraded its call on the Reits sector. Of the eight Reits it covers, five most recently turned in results meeting the house’s forecasts while three did better than expected.

S-Reits outperform peers for total returns in 2009

They posted returns of 85.6%; Asian Reits performed well as a region: study

REAL estate investment trusts (Reits) in Singapore have outperformed their counterparts in other major markets in terms of total returns in 2009, according to a report released yesterday.

Ernst & Young’s study showed that Reits Singapore and Hong Kong posted returns of 85.6 per cent and 64.5 per cent respectively in 2009.

Malaysia (38.6 per cent) and South Korea (28.4 per cent) also put up strong showings.

By contrast, total returns in the more mature Reit markets were much lower. Returns for Australian Reits were 10.4 per cent in 2009, while Japan’s Reits came in at 6.7 per cent. The largest single Reit market in the world, the United States, witnessed returns of 27.9 per cent.

‘Asian Reits performed well as a region because the Asian economies have generally been more resilient to the financial crisis, underpinned to some extent by China’s economic performance and favourable long-term growth outlook,’ said Liew Choon Wai, assurance partner and head of Singapore real estate for Ernst & Young.

The performance of each country’s Reit market appears to reflect the broader economic sentiment, he added: ‘For Singapore, the economy was seen as particularly vulnerable during the financial melt-down, and it was not surprising that we saw a plunge in Reit returns in 2008 to early 2009, which has subsequently rebounded strongly since March as financial markets stabilise.’

But only Singapore recorded a negative three-year rate of return – of minus 4.15 per cent – of the Asian countries outside of Japan. Rates of return for South Korea, Malaysia and Hong Kong are all in positive territory over the last three years. Japan, a mature economy, had a three-year rate of return of minus 19 per cent.

Ernst & Young also noted that since March 2009, many Reit markets around the world have seen significant increases in share prices and Reits have raised billions of dollars by going back to the stock market for secondary (or follow-on) equity offerings to reduce debt, recapitalise their balance sheets and prepare their businesses for the next wave of growth.

Better year ahead for Asian Reits: CBRE

S-Reits seen making better progress in resuming growth compared with their counterparts in the region

THE Asian real estate investment trust (Reit) market picked up in the second half of last year and should continue to improve this year, said CB Richard Ellis (CBRE) in a report yesterday.

In particular, Reits in Singapore (S-Reits) look like they are making better progress in resuming growth, compared with their counterparts in the region.

This year could also bode well for new Reit listings. ‘2010 will probably see the resumption of the initial public offering (IPO) market for Reits,’ reckoned CBRE Research Asia executive director Andrew Ness.

In H2 2009, the total market capitalisation of Asian Reits rose 17.6 per cent, the property consultancy said. Most Reits in the region managed to emerge from the credit crisis relatively unscathed, having raised funds from rights issues or rolled over their debts.

But some Reit markets went through a greater shake-up than others. In Japan, consolidation became the order of the day as four cases of mergers took place. One of these involved the merger of Advance Residence Investment and Nippon Residential Investment, as the latter’s sponsor went bankrupt.

Reits in Singapore and Hong Kong managed to withstand the storm better, even outperforming the main stock indexes in their markets. Between July and December last year, the FTSE ST Reits Index rose some 38 per cent.

‘Generally well managed by professional managers, S-Reits are unlikely to go under,’ CBRE said. ‘While their price movements can be volatile, S-Reits are considered a fairly safe haven in the long term.’

Although stock market conditions in Asia improved in the second half of last year, they were not attractive enough for most sponsors to set up and list a Reit. Just four new real estate funds went public in Thailand, according to CBRE.

But listing activity could return this year – there could be several new S-Reit listings in the pipeline, CBRE said.

Cache Logistics Trust is one that is due to go public soon. ARA Asset Management partnered logistics firm CWT to set it up, and the authorities have given the nod for listing. The Reit will start with six properties worth about $730 million in its portfolio.

ARA also said in December last year that it is working with Regency Group to list a Syariah-compliant Reit in Singapore. The Reit could be listed in the second half of this year and could hold some $1 billion worth of properties, largely from the hospitality sector in Qatar.

The market has also been awaiting the IPO of a commercial Reit by Mapletree Investments. The Reit would hold VivoCity shopping mall, among other assets.

Besides Singapore, Thailand could see more property funds going public this year, CBRE said.

Meanwhile, existing Reits could focus on buying assets and growing distributable income. ‘Further acquisitions are likely in the coming year as Asian Reits look to enhance their portfolio quality ahead of the full recovery of the real estate market,’ Mr Ness said.

Already, some S-Reits have been building up their portfolios. Last month, for example, CapitaMall Trust agreed to buy Clarke Quay for $268 million, and Ascendas Reit said that it would buy three properties for $228.5 million.