Dec 13, 2019
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A number of mergers and acquisitions by these entities have created some of the biggest REITs in the Asia Pacific region

Stocks of real estate investment trusts (REITs) have performed so well in 2019 that a lot of analysts see little scope for further gains. However, recent moves in the sector seem to indicate the likelihood of investor interest being sustained.

A number of mergers and acquisitions by these entities have created some of the biggest REITs in the Asia Pacific region, reported Nikkei Asian Review.

In fact, some have been added to major stock indexes, which translates to greater attention from institutional investors and analysts.

Ng Hui Min, Manulife Investment Management portfolio manager for Asia Pacific REITs said Singapore REITs could have higher distribution and earnings in 2020 because of acquisitions made in the past few months.

Even though a rise in prices since January has crimped their yields, the more popular REITs in the country still offer 4% per annum compared to the less than 2% for 10-year US and Singapore government bonds.

As for sovereign bonds issued by many European nations and Japan, yields have entered negative territory, further decreasing the options for investors wanting regular returns.

With yields nearing historic lows, several analysts see little room for REITs to rise further. Others are more prudent and see value in property segments such as warehouses and hotels.

Singapore REITs have also become enlarged via acquisitions and mergers, increasing their appeal to international investors having tendencies of favouring larger and more liquid securities.

“The consolidation is likely to continue given larger REITs benefit from diversification and larger development and leverage limits…Further, size invariably is linked to index inclusion, which in turn may benefit liquidity,” said Krishna Guha, Jefferies equities analyst.

An example of such acquisitions and mergers is Frasers Commercial Trust and Frasers Logistics & Industrial Trust recent announcement that they will combine and form a REIT that will have nearly 100 properties worth S$5.7 billion.

Ascendas Hospitality Trust and Ascott Residence Trust are also currently in the process of merging and birthing Asia-Pacific’s largest hospitality trust.

Manulife Investment Management’s Ng said she has a positive outlook on retail REITs and industrial ones which are exposed to logistics assets and are geographically diverse, given the big increase in e-commerce.
Meanwhile, Neo Teng Hwee, UOB Private Bank chief investment officer, said UOB favours some REITs having retail and hospitality assets but is somewhat cautious on the office sector.

“Asset values are probably going to hold up pretty well and I don’t think there are going to be adverse rental reversions for any of the major REITs, so we still find Singapore REITs relatively attractive,” he said.

A development that could give REITs a boost next year are changes in regulation that would permit trusts to borrow bigger amounts relating to asset value, giving them more leeway in competing with private equity funds for properties entering the market.

REITs are currently bound by a maximum debt-to-asset limit of 45%, but the Monetary Authority of Singapore is proposing to raise this cap to 50% provided that income exceeds payments by at least 2.5 times.

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg

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