S-Reits on expansion trail again

By Harsha Jethnani SINGAPORE real estate investment trusts (S-Reits) appear to be back on the acquisition trail after facing some serious financial woes in recent times. Several Reits here have been scouting the region, picking up good buys, now that the economy is back on an even keel. Reits have proven very popular among investors here. They usually own a portfolio of a particular type of property and derive income from rents. Unitholders receive regular payments. But it was a different story last March when a National University of Singapore forum on Reits noted that their overall value had plunged about 60 per cent after the onset of the global financial crisis. Refinancing and recapitalisation risks were high. So too was S-Reit debt, estimated to amount to $4.6 billion last year. But by September, a special report by Fitch ratings noted that S-Reits had managed to refinance most of their debt obligations and share prices were recovering. Mr Vincent Yeo, chief executive of M&C Reit Management, the manager of CDL Hospitality Reit (H-Reit), believes the successful refinancing of loans and the flurry of capital-raising activities, particularly in the second half of last year, reflect easing credit conditions. Credit margins, however, are still wider than before the crisis, a spokesman for Ascendas Reit (A-Reit) pointed out. But the easing conditions seem to be enough. In the last three months, S-Reits increasingly bought assets, with most deals being done out of Singapore. H-Reit, Keppel Land's K-Reit Asia and Starhill Global Reit all went Down Under by investing in Brisbane and Perth. Moving into Malaysia, Starhill Global Reit has agreed to buy Starhill Gallery and Lot 10, two retail properties in Kuala Lumpur. In Japan last November, Mapletree Logistics Trust purchased a warehouse in Chiba, while Parkway Life Reit (PLife) acquired eight nursing homes. At home, Mapletree Logistics purchased two warehouses and Frasers Centrepoint Trust proposed the acquisition of Northpoint 2 and Yew Tee Mall. Australia, it appears, is the current favourite, said DMG and Partners analyst Jonathan Ng. H-Reit's $220.9 million purchase of five hotels in Brisbane and Perth is one example. The deal incorporated a 66 per cent discount and would render a net property yield of 8.4 per cent, higher than H-Reit's portfolio yield of 5.2 per cent, said Mr Yeo. A spokesman for Starhill Global Reit said property prices in Britain, Japan and Australia have become more attractive as capitalisation rates have reached an all-time high in the past decade. OCBC Investment Research analyst Meenal Kumar said the best distressed deals are in the more developed markets. In Singapore, making yield-accretive purchases is more challenging and acquisition opportunities may vary according to property sub-sector. Due to many assets being securitised in the past five years, more S-Reits are likely to look overseas for opportunities in future, said Mr Ng. PLife has already defined Australia and Malaysia as additional core markets this year, in addition to Singapore and Japan, said chief executive of Parkway Trust Management, Mr Yong Yean Chau. Reits will have to be mindful of how much debt they take on for acquisitions. Sticking to a debt level of 30 per cent to 35 per cent is reasonable, Mr Ng said. Some Reits are also looking at divesting sub-optimal assets as a strategy or for the purposes of lowering debt, Ms Kumar noted. [e-mail] This article was first published in The Straits Times.