Real estate investment trusts in Singapore with growing exposures overseas in places like China, Japan and Australia are bucking the trend of lower returns at home where the city-state's market has been slowing.
Known as S-REITs, the US$49 billion (RM158.10 billion) sector, Asia's second-largest after Japan, fared poorly in 2013. Jitters about the end of the US Federal Reserve's stimulus programme and a series of moves by the Singaporean government to cool the property market raised concerns the trusts would lose their appeal to yield-hungry investors.
Those worries have not subsided as evidenced by South Korea's Lotte Shopping Co's decision last week to postpone the listing of a US$1 billion trust in the city-state.
But the drive by many REITs to focus on overseas purchases means those that have made foreign ventures have seen their results surprise on the upside this earnings season.
"If you want something with a higher yield injected into your portfolio, you want to look into other markets outside Singapore," said Desmond Sim, head of CBRE Research. "You definitely want to look towards Tokyo and Australia where there are more established, mature markets."
Average distributable income, the earnings that are distributed to REIT unit holders, for the January-March quarter among the REITs that have made overseas acquisitions in the past year, grew 9.1%, compared to 7.9% the same period last year.
By comparison, average distributable income of the wider REIT sector rose 5% in the March quarter, down from a 10.7% gain the previous year.
Ascendas REIT, Singapore's largest industrial property trust, is among the major outperformers. It saw distributable income rising 21.9% in the latest quarter, helped by the acquisition of a business park in Shanghai last year.
CapitaRetail China Trust, with a portfolio of 10 shopping malls in China, also reported a 13% rise in distributable income, close to three times its growth in the same period last year.
Singapore has 33 trusts on the stock exchange and the S-REIT index gained 6% year to date, versus a 5.6% rise in wider real estate stocks and a 2.5% gain in the benchmark Straits Times Index.
REITS are popular with investors as they can offer higher yields than regular property stocks through tax-exempt dividends and a requirement to distribute at least 90% of taxable net income to unit holders.
However, REITS focused on the Singapore domestic market, particularly those in business parks away from the central business district, face a tougher outlook.
Standard Chartered forecasts business park rents to be flat within the next two years and said last month that tougher foreign-worker rules might prompt banks and IT companies to relocate some operations overseas.
They cited Viva Industrial Trust as one trust that might see a squeeze on earnings, downgrading its price target by 5%.
Viva said in a statement it is confident about its portfolio, which is "backed by quality assets with high-quality tenants".
Shares in CapitaRetail have gained 11.3% so far this year, while Mapletree rose 7.4%. Viva gained 1.9% during the same period. – Reuters, May 9, 2014.