Singapore real estate investment trusts (REITs) have acquired $7 billion worth of properties in the country and overseas to date this year.
Analysts said the shopping spree will likely continue next year but warned that not all acquisitions may be yield-accretive and overseas transactions could expose REITs to more risks.
Based on data compiled by DBS Vickers, REITs have completed acquisitions of about $7 billion year-to-date. Purchasing activity got better as the economy picked up and financial markets thawed. In 2009, the majority of REITs avoided straining their balance sheets with acquisitions and were busy refinancing debts.
Among the biggest buyers this year are Starhill Global REIT, which acquired retail assets in Malaysia and Australia for around $599 million; Suntec REIT, which paid about $1.5 billion on a stake in properties in Phase One of Marina Bay Financial Centre; and K-Reit Asia, which spent some $1.75 billion also on a stake in MBFC Phase One.
Office REITs owe much of their growth this year – a 19 percent increase in distributable income year-on-year – to acquisitions.
The industrial REIT segment is also poised for acquisition-driven growth in 2011.
“Industrial REITs are likely to continue to enjoy better acquisition growth potential given the relatively higher yields of industrial assets (versus current implied yields of industrial REITs) and each transaction tends to be of lower values compared to other asset classes,” said the DBS Vickers report.
“We expect demand for industrial space to remain relatively stable – fuelled by continued expansion and more firms setting up their operations in Singapore. Occupancy levels should continue to firm in coming quarters with landlords likely to seek higher average rents during renewals in their bid to maximise portfolio yields.”
REITs could enter into more acquisitions in 2011, considering what their sponsors alone can already offer.
DBS Vickers noted that real estate yields overseas tend to be higher, “more accretive to earnings” and enabled the trusts to diversify their market exposure.
REITs, however, need to consider possible tax leakages and foreign exchange volatilities against yield accretion, its analysts warned.