A fall of around one-third was recorded in Asian real estate investment trusts’ (REITs) market capitalisation in the last two quarters in 2008 compared with the first two quarters, since REITs units’ prices plummet and new listings run out.
Data from CB Richard Ellis (CBRE) reveals that the shrink has taken its toll on Singapore REITs, which endured a 53 percent fall in market cap between 30 June 2008 and 31 December 2008. Singapore REITs had an average price fall of 54 percent, the most distressing fall compared to that of seven other Asian REIT markets included in the study conducted by CBRE. REIT markets in Thailand, Malaysia, Japan, Hong Kong, Taiwan, South Korea and Singapore are those that have been included in CBRE’s study.
With Japan and Singapore being excluded, Asian REIT markets have actually managed to outdo the wider stock market in relation to average price. Asian REITs currently faced one of the most significant issues – the deficiency in available credit.
DBS Vickers Securities’ current regional REITs report shows that since global credit pipelines continues to be jammed, issues of debt and refinancing rollover will probably be the focus of top investors. Meanwhile, regarding debt maturity profile, Singapore appears to have the worst situation, wherein a bigger proportion of Singapore REITs debts are maturing. About 24 percent or $3.2 billion of total sector indebtedness must be paid in the current year.
Additionally, there has been an increase in credit spreads and the expected distribution per unit growth would be eaten away by higher interest expense, DBS Vickers noted. The firm claims that it has discovered that Singapore REITs yields have remain stagnant, which is probably because of the positive rental reversion’s lag effect, as well as the dragging of share prices from asset deflation prospects and overhang concerns over equity issues, particularly in the office sector.
Based on the 2009 financial year dividend, a 900 basis point covering the long-term bond yield, Singapore-REITs are yielding 12.5 percent, with some chosen industrial and office REITs being on top. On average, the sector is trading at 0.4 times price-to-net asset value. “To highlight this, implied property yields of 8.5 per cent are significantly higher than current property returns of 5.0 per cent”, said the report.
“The first one-and-a-half months of 2009 saw stock prices in the S-REIT sector falling by 10.4 per cent year to date, versus a 5.2 per cent decline in the EPRA/NAREIT Asia Index and compared to +9 per cent, +7 per cent and +3 per cent in Hong Kong, Malaysia and Thailand respectively”, DBS Vickers revealed.
Though it is likely to expect a lengthy downturn in capital markets, S-REIT managers may consider acquisitions and mergers as good alternatives in strengthening their portfolios, said CBRE in its report.
“Such activity could take the place of direct real estate acquisition, which is more difficult as the slump in S-REIT prices has led to the uptick of distribution yields, making it harder for them to make yield-accretive acquisitions. Going forward, S-REITs are likely to temporarily cease purchasing new assets and instead focus on their existing portfolios to sustain revenue growth”, said CBRE.
CBRE also furthered that the descending cycle in property markets in Asia could consume the rest of the current year, and as of now, it is quite hard to predict if it will recover at the next year’s onset. “Rental incomes and the asset valuations of REITs will therefore be significantly affected” the property consulting group added.