In the first half of 2009, most Asian REITs have endured the economic crisis but according to CB Richard Ellis (CBRE), challenges – from diluting gearing to increasing distributions – remain ahead.
According to a property consultancy’s report released yesterday, the market capitalisation of Asian REITs increased to 14.3% in the first half of 2009.
Singapore’s FTSE REIT Index increased more than 35% from January, earning yesterday 7.34 points and close at 503.39. Executive Director Andrew Ness of the CBRE Research Asia said, “General improvement in the credit market, government support for the re- financing of J-REITs (Japan REITs) and successful rights issues for S-REITs (Singapore REITs) have substantially enhanced Reits around the region”.
CBRE notes that various large-cap Asian REITs have recently increased its rental income. Many S-REITs have also attained or even succeeded the expectations of analysts in regard to its recent financial outcomes.
CBRE also said that as Asian REIT market enhance more in the second half of 2009, initial public offering and acquisition activities were not likely to regain to pre-downturn levelswithin the upcoming months.
The purchasing price of US$325 million by Japan Prime Reality Investment for an office building in Tokyo was the biggest deal among Asian REITs during the first half of the year. CBRE said the price of the ten largest deals, which involved Asian REITs, is only 63% of that of in the second half of 2008.
“Reducing financial leverage will continue to be the major task for many Asian REITs, especially for those with assets which have experienced a deep price correction that may lead to potential breach in loan-to-value ratio covenants,” Ness said.
Other market spectators shared same worries regarding property prices and their effect on gearing. Janice Ding, the CIMB analyst noted in August 12 report that S-REITs may deal another turn of equity fund-raising to enhance their balance sheets, getting ready for the year-end’s sharp devaluation of asset values as well as the capital markets’ uncertainties.
CBRE assumes that when rents declined, Asian REITs will encounter challenges in developing distributions. It denotes for example, that more than 75% of J-REITs anticipate that distribution dividends will decrease in the upcoming reporting period.
In Singapore, the Office REITs have also something to be worried about. According to Tuesday’s DBS Vickers report, due to a weak demand on fundamentals and supply, it would suffer a negative downward rental reversion.
Analysts estimate that S-REITs will take approximately $1.89 billion of debt that will mature by next year and $3.28 billion by 2011.