Hot Singapore REITs Still Seen Offering Attractive Yields

10 Apr 2013 15:17

WSJ BLOG: Hot Singapore REITs Still Seen Offering Attractive Yields

(This story has been posted on The Wall Street Journal Online's Market Beat blog at http://blogs.wsj.com/marketbeat.)
 
By Leslie Shaffer

If dividend stocks are sexy, Singapore's real-estate investment trusts just might be Ryan Gosling.

But while Singapore-listed REITs may seem expensive after a rally over the past year or so, they aren't when compared with equities and bonds, says Tim Gibson, head of Asian property equities at Henderson Global Investors, which manages US$106.7 billion. "They should sit somewhere between the two."

The FTSE ST REIT index tacked on 5.1% in the first quarter and was up 30.7% for the year ending March 31.

REITs are generally required to pay out much of the income from their underlying properties as dividends. Mr. Gibson says S-REITs offer the highest yields, both on an absolute basis and compared with the country's five-year government bonds. While Australian REITs' yields come close, the country's bond yields are higher than Singapore's, he says.

The yield on the FTSE ST REIT Index is around 5.17%, while the five-year Singapore bond yields around 0.5% and the STI's dividend yield is around 2.8%.

"As long as interest rates remain under control, S-REITs are in the sweet spot to continue their strong performance," Mr. Gibson says.

Henderson's new Global Property Income Fund will invest around 25% of its assets in Singapore-listed REITs, compared with 44% in the U.S., 9.5% in continental Europe and 5.0% in Japan.

S-REITs' income is growing despite Singapore's slowing economic growth, he says, partly because many are trading above their net asset values, meaning they can issue equity to finance acquisitions. Meanwhile, leases signed during the global financial crisis are now being renewed at higher rates and many S-REITs have begun buying assets outside the land-starved city-state, he says.

Mr. Gibson likes the office markets, citing the relatively low supply in Singapore and the length of time needed to create new supply. He tips Suntec REIT as one of the cheapest plays, offering a 5.5% dividend yield and an ongoing asset enhancement which should increase asset yield and cash flow. Henderson also holds CDL Hospitality Trusts.

Mr. Gibson says he is also positive on Singapore's industrial REITs, whose offerings are sophisticated and multi-story.