Still 'one safe haven' for investors - Reits

Aug 17, 2008

property

Still 'one safe haven' for investors - Reits

Funds turning in 'decent results' and should see better earnings in near term

By Fiona Chan

Home prices are peaking, sales are sliding, and property counters are among the stock market's worst performers.

What's a property investor to do?

Fortunately, there is still one safe haven, according to a recent report by Credit Suisse. It tips real estate investment trusts, or Reits, as a good bet for investors.

Reits turned in 'decent results' in the second quarter and should see better earnings in the near term, the bank said in its report.

Reits are listed funds that buy properties and collect rental income, which they distribute to unit holders like dividends.

Credit Suisse said three Reits, in particular, surprised with better-than-expected results: Mapletree Logistics Trust, Suntec Reit and CDL Hospitality Reit. But another three - Frasers Centrepoint Trust (FCT), Lippo-Mapletree Indonesia Retail Trust, and CapitaRetail China Trust - were disappointments, it reported.

The bank noted that quarter-on-quarter, office trusts delivered the strongest growth in terms of earnings, while hospitality Reits turned in the weakest performances.

On a year-on-year basis, retail Reits grew the most in terms of earnings and industrial ones the least.

Overall, CapitaCommercial Trust was the only Reit expected to grow by more than 20 per cent in terms of distribution per unit for both the current and next financial year, predicted Credit Suisse.

It also said it preferred large defensive Reits in the suburban retail and industrial sectors, particularly CapitaMall Trust and Ascendas Reit.

Another bank, Citigroup, also issued some positive calls on Reits last month.

It upgraded Suntec Reit to a 'buy', forecasting high yields of over 7.5 per cent. The trust's results had come in above market expectations, boosted by strong rental renewals for its office and retail space.

Credit Suisse's report marked a turnaround of sorts for the Singapore Reit sector, which was overcast with clouds as recently as three months ago.

Ratings agency Moody's Investors Service issued in May a negative rating outlook for Singapore Reits, citing negative sentiment and short-term refinancing risks due to tighter liquidity. Some analysts followed up by downgrading or cutting their target prices for Reits on the back of rising interest rates.

Most Reits, however, have since managed to secure refinancing for their debt despite the global credit crunch. They are also now better bets than developers for their 'recurrent income and more predictable cash flows', Credit Suisse said.

Its report concluded that the debt profile of Singapore Reits had improved and earnings were expected to be resilient in the near term.

The bank warned, though, that risks of credit availability and high borrowing costs still exist, as do concerns over asset devaluation.

For now, though, asset values are still expanding and interest rates are expected to remain low, it added.

fiochan@sph.com.sg



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