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Safety in Reits? Don’t count on it:Analysts

I’m bringing you this article that caught my attention on the business times. Certainly for dividend investors the opportunity in REITs have been getting good these few months with some REIT having yields up to 9-10%.

While searching for top yielders are important, it is worthwhile to choose based on growth prospects and value prospects as well.

Personally i would rather hold down a REIT if it is a growth story but irrationally beaten down, rather than an outright high yielder. You might stand to earn more from the attention the market gives it and the capital appreciation rather than a high yielder that gives the same yield that stagnates.

Yields are attractive but they are subject to movements in cyclical property market

(SINGAPORE) High yields and strong results are making real estate investment trusts (Reits) stand out in a volatile market. But there is debate over their potential as defensive plays, with some market watchers cautioning that Reits are not necessarily safer bets because of their link to the cyclical property sector.

Most Reits turned in impressive results for the quarter ended June 30, 2008. The 18 which reported their performance before last Friday all achieved higher distributable income and distribution per unit (DPU) over the same period last year.

Distribution yields reported by the Reits, based on annualised DPUs and last Friday’s closing prices, ranged from 4.8 per cent to 11 per cent. Reits which offered yields above 10 per cent included MapleTree Logistics Trust, healthcare-related First Reit and Lippo- MapleTree Indonesia Retail Trust.

Overall, the Reits had an average distribution yield of around 7.8 per cent, offering a spread of over 4.6 percentage points above the 10-year Singapore government bond yield of 3.14 per cent on Friday. Compared with one-year fixed deposit rates which start from around 0.8 per cent, the Reits offered an even wider spread.

Analysts say Reits have largely performed in line with expectations. Their good performances have won them fans – with many trading at discounts to net asset values and thus offering relatively high yields, OCBC Investment Research said in a recent report that investors could ‘take a fresh look at S-Reits as defensive vehicles offering stable cash flows and high yields’.

However, others pointed out that Reits still may not match up to traditional defensive plays, including high-yielding blue chips like telcos and banks. While Reits do offer high distribution yields, the sector is influenced by movements in the property market, which tends to be more cyclical compared with, for instance, the telecommunications industry, or even banking, they say.

Distribution yields are also a function of Reits’ unit prices, so yields may look high simply because unit prices have dropped, explained one analyst. Considering both capital gains and distributions to investors, Reits have not done as well compared to around a year ago, he added. The FTSE ST Reit Index has fallen by more than 10 per cent since it was launched on Jan 10 this year.

Reit fans, on the other hand, argue that few sectors are completely resistant to economic slowdowns. Also, some Reits may be more resilient because they can lock in leases over several years, which helps stabilise earnings.

Where there is agreement among most of the market watchers BT spoke to is that Reits will continue to generate steady operating results. For those which have locked in leases or are able to gain from higher rental reversions on lease renewal, ‘there is a lot of predictability in terms of their earnings and distributions,’ said Daiwa Institute of Research analyst David Lum.

With credit conditions staying tough, however, much of the earnings growth will have to come organically. Reits may still acquire properties but they will have to be more selective, analysts say.

Analysts’ top Reit picks include Suntec Reit. ‘With 32.6 per cent of total office net lettable area up for renewal in FY09, we believe Suntec is well-positioned for rental reversion with current $14 psf signing rents versus passing rent of around $6.30 psf,’ said a Citi Investment Research report last week.

CapitaCommercial Trust was another popular choice. Goldman Sachs reiterated its ‘buy’ call on the Reit, favouring its strong organic growth and ‘leadership among office Reits’.


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S Fox

Saturday 20th of March 2010

Where do I purchase shipping REITS?


Tuesday 29th of September 2009

REITs are good if you are looking for income or dividends. As we can see from hindsight, the economic crisis did have an impact on many of the REIT's prices


Monday 16th of March 2009

First of all, there should be appreciation for you to extract the article, which is normally not available online. REITS will beat stuffs like minibonds and Lehman Brothers, but then, I always remind myself that we as human occupies a spectrum of intelligence. At IPO, most property REITS will give you a shade below 8% and the current payout is mainly due to a fall in price. No mathematical genius is required. In general, all REITS will work fine in a low interest environment and in times of high business costs. Today, March 2008, buisness cost is downhill as far as the rental cost. Interest rate is supposed to be lower, but try convincing the banks to support your business plan.

There are so many ways to earn money that is of equal risk as property REITS and some pays up to 60% annual dividend. As the topic is REITS, let me remail focus and say that shipping REITS ( STX PO, PST, FSL, Rickmers ) would beat you in the game. They give you returns in excess of 40%, meaning in 2.5 years, you get all your money back and a free shares that provides something like annunity for life. Ships are usually rented between 7 - 12 years, meaning they rides over the boom and gloom years. Then, as shipping REITS don't have ship tenure that ends at the same time, the variation, is minimal. If you want to know more, then, just read up all the analyst's report.

So, once again, thank you for reading my response, and remember you are still aright, it only defers that I have better returns for my money and I don't see any downside or risk. In fact, I have my REITS since IPO and check out SGX for their consistent DPU.

Have a nice day.


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