REITs, Trusts and Stapled Securities


What is the difference between a REIT and a Property Trust? What about REITs and Stapled Securities?

Real Estate Investment Trusts (REITs), Property Trusts and Stapled Securities are three different vehicles that a security investor can get into property investments. But some investors are fond of using these terms loosely without understanding the fundamental differences between them. In fact, it is not uncommon to see even respected mainstream media confusing these terms and using them interchangeably and inappropriately.

It does not help that these terms are not regulated by the authorities. A REIT could call itself a Trust and similarly a property trust could call itself a REIT without having the obligation of operating as one as per the guidelines stipulated by regulators.

In this article we will present to you the key differences between these 3 types of securitized real estate investments and why it matters that you understand the nature of each carefully in order to make an informed investment decision.

REITs

In most jurisdictions, in order for a collective property investment to call itself a REIT it must pay out a minimum of 90 percent of its rental income to unit holders annually. This comes on the back of requirements of minimum assets sizes and restrictions on business activities. REITs are also subjected to limits on the amount of loans that they can take. In Singapore, the gearing limit is 35 percent for REITs with a credit rating and 60 percent for REITs that are unrated.

The regulations imposed on REIT are enforceable by the authorities and listed REITs are subjected to a high degree of transparency and scrutiny by the government and unit holders alike.

With so much restrictions, why does a collective property investment bother to go through the trouble of manifesting itself as a REIT? The short answer - favorable tax treatments. As long as a REIT satisfies the conditions stipulated by regulators, it is exempted from corporate taxes and duties that are usually leveled against property investments companies. This means more income from your properties overall despite the stricter amount of regulations that you will have to comply with

Property Trusts

Listed Property Trusts are also collective property investments that pool money from unit holders primarily to invest in income producing real estate. Rental income is similarly distributed to unit holders after deducting costs such as management fees and other overhead. Like REITs, Property Trusts are also by collective investment codes and other regulations that may be imposed by the bourses in which they are listed.

However, and herein the most important difference between REITs and Property Trusts, is that Property Trusts are not obligated to pay out a minimum amount of its rental income to unit holders. It is also not subjected to the leverage and asset size limits that REITs are imposed with. This means that should a Trust manager decide that business is bad for a particular year, it may not distribute any rental income and unit holders can be left with no income distribution for the units they hold at the end of the financial year. Property Trusts do not receive the same types of favorable tax rulings that REITs enjoy.

Examples of Property Trusts in Singapore that have often been confused as REITs by the media include the recently-listed Croesus Retail Trust and Perrenial China Retail Trust

Stapled Securities

In the context of securitized property investments, Stapled Securities are listed property investment securities that can be a bundle combination of either REITs, Property Trusts units or even property stocks.

This commonly happens when a securitized property investment vehicle decides to apply a REIT model to a certain segment of its property portfolio while taking on a Trust model for another segment to form a single trade-able unit known as the Stapled Security. In this manner, the manager of the Stapled Security need to be bound by REIT regulations only for the segment of the portfolio that adopts the REIT model. He is then free to pursue other plans for the properties that do not require compliance to REIT regulations. Hence a Stapled Security is obligated to pay a the minimum amount of rental to unit holders only for the properties that are adhering to a REIT structure.

An example of a Stapled Security is Singapore-listed CDL Hospitality Trusts which comprises of CDL Hospitality Real Estate Investment Trust and CDL Hospitality Business Trust. Another prominent example of a Stapled Security in this region is the KLCC REIT in Malaysia that comprises of REIT units and property stocks of KLCC Property Holdings Berhad (KLCCP).

Stapled Securities are similarly bound by listing and reporting regulations that may be imposed the the respective bourses.

These are the salient differences between a REIT, a Property Trust and a Stapled Security. Several more technical differences exist between the three but its full breadth will not be covered by this short article. But the main features covered above will help you to make a more informed decision as an investor.

Weighted Average Lease to Expiry (WALE)
One of the bigger risks of managing commercial properties is vacancy. When a property, or parts of a property, is left vacant for too long, property income and distribution to shareholders will be affected. This is where the metric WALE comes in handy as an assessment tool.

Weighted Average Lease to Expiry (WALE) is used to measure the overall tenancy risks of a particular property with multiple tenants and is used by REIT investors to assess the likelihood of a property being vacated. In other parts of the world, other abbreviations such as WALT (Weighted Average Lease Term) and WAULT (Weighted Average Unexpired Lease Term) are sometimes used and practically means the same thing. In the Asia Pacific region, investors are more accustomed to WALE.

WALE is measured across all the tenants remaining lease in years in a property and is weighted by either the tenant’s lettable area or the tenant’s income against the total combined area or income of the other tenants.

Most investors are of the opinion that the longer the WALE is the better. But depending on your investment objectives, this may not necessarily be the case:

Commercial buildings with long WALE, typically of being 5 years or more, usually have the commitments of large tenants such as government departments or multinational corporations. They have little to worry about in terms of vacancy risk but larger tenants would usually mean that the property will not be able to negotiate for rent hikes as much as a property with smaller tenants. Therefore there will be a limitation in terms of internal growth.

Commercial buildings with shorter WALE, typically of between 1 to 4 years, usually have smaller businesses as their tenants who do not commit to lease terms of longer than 5 years. There is higher vacancy risk as compared to a property with larger tenants. But commercial properties like these are generally able to manifest more robust growth internally through periodic rent hikes, resulting in better growth in property income. But do bear in mind that commercial properties with shorter WALE may face higher costs in terms of leasing agent fees, advertising fees and legal fees.

So if robust internal income growth is your preference, REITs with long WALE may not exactly work in your favor. But if you are after predictability and stability of income, REITs with longer WALE may be your best bet.

Singapore REITs Index Up 12.9 Percent in 2013

If you are investor holding on to a Singapore-listed REIT since the start of 2013, you will be sitting on average gains of about 12.9 percent so far this year. This is according to latest update by Singapore Exchange which shows that all 23 REITs listed on the Singapore bourse making gains for 2013 to date (With year-to-date taken as 17 May 2013).

REITs with the biggest gain in prices for 2013 so far are Hong Kong-focused Fortune REIT (34.81 percent) and healthcare landlords First REIT (34.43 percent) and Parkway Life REIT (25.58 percent). Also making respectable gains are Cambridge Industrial Trust (25.19 percent) and Keppel REIT (23.55 percent).

REITs with the weakest price gains this year to date are CapitaCommercial Trust (1.19 percent) CapitaRetail China Trust (4.86 percent) and Saizen REIT (4.97 percent). Performance for the rest of the Singapore-listed REITs are ranked below according to percentage change in price.

RANK REIT % CHANGE % DIV
1 FORTUNE REIT 34.81 3.87
2 FIRST REIT 34.43 3.12
3 PARKWAYLIFE REIT 25.58 3.85
4 CAMBRIDGE INDUSTRIAL TRUST 25.19 5.74
5 AIMS AMP CAPITAL INDUSTRIAL TRUST 24.08 4.89
6 KEPPEL REIT 23.55 3.69
7 MAPLETREE GREATER CHINA 21.51 NA
8 MAPLETREE COMMERCIAL TRUST 20.58 3.38
9 STARHILL GLOBAL REIT 19.75 4.99
10 FRASERS COMMERCIAL TRUST 19.70 4.52
11 SABANA REIT 18.86 6.96
12 MAPLETREE LOGISTICS TRUST 17.03 5.12
13 CACHE LOGISTICS TRUST 15.73 4.55
14 LIPPO MALLS INDONESIA RETAIL TRUST 15.31 5.58
15 ASCENDAS REIT 15.19 3.74
16 MAPLETREE INDUSTRIAL TRUST 14.34 5.94
17 SUNTEC REIT 12.84 4.90
18 FRASERS CENTREPOINT TRUST 12.50 4.63
19 CAPITAMALL TRUST 7.51 3.16
20 ASCOTT RESIDENCE TRUST 7.35 3.33
21 SAIZEN REIT 4.97 6.79
22 CAPITARETAIL CHINA TRUST 4.86 2.74
23 CAPITACOMMERCIAL TRUST 1.19 4.72



When ranked according to 12-month historical dividend distribution yields the REITs that came out on top are Sabana REIT (6.96 percent), Saizen REIT (6.79 percent) and Mapletree Industrial Trust (5.94 percent). Rank for Mapletree Greater China Commercial Trust is not available due to a lack of historical performance.


RANK REIT % CHANGE % DIV
1 SABANA REIT 18.86 6.96
2 SAIZEN REIT 4.97 6.79
3 MAPLETREE INDUSTRIAL TRUST 14.34 5.94
4 CAMBRIDGE INDUSTRIAL TRUST 25.19 5.74
5 LIPPO MALLS INDONESIA RETAIL TRUST 15.31 5.58
6 MAPLETREE LOGISTICS TRUST 17.03 5.12
7 STARHILL GLOBAL REIT 19.75 4.99
8 SUNTEC REIT 12.84 4.90
9 AIMS AMP CAPITAL INDUSTRIAL TRUST 24.08 4.89
10 CAPITACOMMERCIAL TRUST 1.19 4.72
11 FRASERS CENTREPOINT TRUST 12.50 4.63
12 CACHE LOGISTICS TRUST 15.73 4.55
13 FRASERS COMMERCIAL TRUST 19.70 4.52
14 FORTUNE REIT 34.81 3.87
15 PARKWAYLIFE REIT 25.58 3.85
16 ASCENDAS REIT 15.19 3.74
17 KEPPEL REIT 23.55 3.69
18 MAPLETREE COMMERCIAL TRUST 20.58 3.38
19 ASCOTT RESIDENCE TRUST 7.35 3.33
20 CAPITAMALL TRUST 7.51 3.16
21 FIRST REIT 34.43 3.12
22 CAPITARETAIL CHINA TRUST 4.86 2.74


Including dividends, S-REIT unit holders would have made an average gain of about 15.84 percent this year to date. All data have been compiled by Singapore Exchange from Bloomberg and ranked by REITSWEEK.

Thanks Prophetjul this is a very helpful post indeed. It seems that the summary from REITSWEEK.com seem to suggest that Singapore Industrial REITS give the best dividends for investors looking for yield.

However if you are into price appreciation, it seems that its Singapore Healthcare REITs that is doing very well.

There has been a lot of money going into REITs looking for divs in the past year.

Its very difficult to find bargains in this sector anymore with the div yield compression

But then some funds maybe happy with 5%.

The healthcare sector in SG is very strong and attractive as far as the future is concerned.
Altho the div yield is lower, its very stable in the foreseeable future.

THE BURGEONING MARKET

S-REITs continue to perform

Sector currently trading at 1.24x P/B

Prefer S-REITs with strong fundamentals and compelling valuations


Firm 1Q13 performance; mostly in line


In our latest assessment of the S-REITs sector, we continue to see familiar trends. REIT managers have generally maintained firm growth in their trusts’ rental income, on the back of contributions from past investments and improved operational performance. Of the 16 SREITs under our coverage, 10 of them reported results that were in line, three exceeded our expectations, while the remaining three fell short of our forecasts.


Leasing activities remained largely healthy


1Q13 operating metrics for most of the S-REITs had stayed resilient. Average portfolio occupancy was stable at 96.9%, whereas the weighted average lease to expiry improved from 4.3 years in 4Q12 to 4.5 years. In addition, positive rental reversions were also clocked. This clearly illustrates the healthy rental market demand and proactive lease management on the part of the REIT managers, in our view.


Active capital management


We also observe that S-REITs have been very active in refinancing its existing debts and maintaining an optimal capital structure. There were a slew of private placements in 1Q, which helped keep the aggregate leverage healthy at 32.1%. Going forward, we believe that the sector’s aggregate leverage is set to trend upwards. As such, SREITs may continue to tap the equity capital market to fund their proposed investments. The cost of debt is expected to maintain at current levels or increase marginally, as S-REITs trade possibly higher interest costs for diversified funding sources, longer term debt, and/or an improvement in their unencumbered asset ratios.


Sector outlook remains sanguine


For 2013, we are maintaining our view that S-REITs are likely to continue to deliver firm performance. All the S-REITs are either involved in asset enhancement initiatives/development projects, pursuing yield-accretive acquisitions, or enhancing their portfolio metrics through active leasing efforts, which should lead to continued strong numbers for their financial scorecards. For our coverage, we expect the S-REITs to post 6.6% growth in aggregate DPU for the current fiscal year, before experiencing another 8.6% growth in the next year.


Prudent to be selective


Nevertheless, the S-REIT index has been enjoying a good run-up, raking up 36.7% gain in 2012 and another 12.7% increase YTD. Given that the S-REITs are now trading at a 24% premium to book value on average, we feel that it is prudent to be selective on S-REITs. We continue to prefer S-REITs with good growth potential, strong financial position and compelling valuations (relatively lower P/B and decent DPU yields). In this respect, we continue to pick CapitaCommercial Trust [BUY, S$1.80 FV], Fortune REIT [BUY, HK$8.64 FV] and Starhill Global REIT [BUY, S$1.05 FV] as our preferred BUYs. Reiterate our OVERWEIGHT view on the broader SREITs sector.

Singapore REITs tumbled by as much as 6 percent on Friday? Are REITs finally crashing from their astronomical prices?

Singapore REITs Dive on Chinese Data : REITSWEEK

Singapore REITs Dive on Weak Chinese Data
Singapore REITs were some of the Straits Times Index' biggest losers as markets closed sharply lower on Friday on weaker-than-expected Chinese economic data. Office REIT Frasers Commercial Trust dived nearly 6 percent while CapitaMall Trust and CapitaRetail China Trust bled about 5.6 percent each. This as compared to the Straits Times Index (STI) which lost only 1.8 percent.

The rest of the 10 worse losing REITs or Trusts are compiled as follows:

(actually there is a table but sorry I don't know how to copy tables lah )

Singapore’s Market for the Week: REITs Nosedive

By Ser Jing Chong - May 25, 2013

One of the big stories for the week was the 7% plunge in Japan’s Nikkei 225 Index on Thursday. That came after reports of weak manufacturing activity in China surfaced together with news of a rise in interest rates in Japan, sparking fears of a halt in Japan’s attempted economic recovery under Abenomics.

In Singapore, the Straits Times Index (SGX: ^STI) was down for the week by 1.6% to 3,393 from last Friday’s close of 3,449. The index had more-or-less stayed flat from Monday to Wednesday before Thursday’s 1.8% plunge to 3,393, possibly due to contagion with the Nikkei’s fall.

For investors who are focused on Singapore’s blue chips, they might have missed an interesting development in locally-listed Real Estate Investment Trust (REITs) which might have been a result of the rise in interest rates in Japan – none of the 23 REITs listed on the Mainboard stock exchange ended with gains on Thursday.

The losses ranged from the 2.1% decline to $0.192 for the Japanese real estate-related Saizen REIT (SGX: DZ8U), to the 6% drop to $1.49 that commercial property REIT Frasers Commercial Trust (SGX: KT8U) suffered. Even Singapore’s oldest REIT, CapitaMall Trust (SGX: C38U) wasn’t spared as the retail property REIT went down by 5.7% to $2.17.

In Japan, a big part of Abenomics involves the buying of bonds by the Japanese government, which was expected to continue to lower interest rates. But, interest rates started spiking in the midst of the bond-buying programme, putting questions into the efficacy of quantitative easing and if the prevalent low interest rate environment can continue. To see how this relates to REITs, we have to look at their capital structure.

REITs carry significant debt on their balance sheets and because of legal requirements for them to distribute almost all of their income, they only have three options to deal with debt: 1) Refinance due-debts with new debt, 2) Raise additional cash through an offering of units or 3) the worst-case option of having to sell-off income producing assets for cash to pay up for loans that are due.

If interest rates start rising across the board, REITs are going to find debt a lot more expensive to obtain during refinancing. With expensive debt come higher interest payments and if rental incomes are kept constant, unit-holders will find themselves with a much smaller income.

That’s not all. Both Option 2) and 3) will only cause existing unit holders to suffer, either through dilution (for the second option), or from the loss of partial rental-income (for the third option). It’s not a good position to be in for a REIT investor if they are caught between these insufferable situations.

No one can calculate with mathematical precision the odds of those adverse events I described earlier. But, those risks are present and some of them have been raised by ratings agency Fitch Ratings in March this year. With leverage, comes risk and so, investors ought to tread carefully.

http://www.fool.sg/2013/05/singapores-mark...s76yhocs0070001

This post has been edited by prophetjul: May 26 2013, 04:51 PM

confirmed SPH REIT

MEDIA group Singapore Press Holdings will be spinning off a real estate investment trust (reit) of its retail malls, it announced Monday evening.

It has received a listing eligibility from the Singapore Exchange.

Chief executive Alan Chan said: "We plan to inject Paragon and The Clementi Mall into SPH Reit."

SPH is expected to hold about 70 per cent of the units in the Reit, and plans to declare a special dividend of 18 cents.

SPH's retail reit is expected to list in early July, said chief financial officer Tony Mallek at a press briefing on Monday. This is subject to shareholders' approval at an extraordinary general meeting in June.

This post has been edited by ryan18: May 27 2013, 07:48 PM

REITs – OSK DMG

Rising Risks But Slower Growth


In 1Q13, the FSTREI performed slightly better than STI, with a YTD appreciation of +12% vs the latter +7.5%. During this period, the low interest rate and high liquidity environment have prompted investors to continue their chase for yield plays. In this report, apart from providing a recap and an outlook on the sector, we also examine the effects in the event if any/all the three main drivers of the S-REITs sector changes.


Stable results – grew through AEIs and acquisitions. The latest SREITs results posted market cap weighted average growth of +3.5% y-o-y and +1.4% q-o-q in DPU for the sector. Among the 23 REITs (excluding MAGIC) listed in Singapore, only four REITs reported a lower y-o-y DPU. Among the REITs that recorded a positive growth in earnings, 61.1% of them grew as a result of AEIs (16.7%) and new acquisitions (44.4%).This is inline with our earlier view that most REITs will focus on growing their earnings inorganically, on the back of a low interest rate and high liquidity environment.


Flattish outlook in the various subsectors of SREITs. Although the rental market continues to be well-supported by the various industries, the outlook for possible positive reversion appears dampen in the industrial, hospitality and retail market as the global economy remains uncertain. Coupled with ample supply of commercial buildings over the next two years, we retained a flattish outlook on these sub-sectors. However, in a mid-term timeframe, we remain positive on the outlook of the Grade-A office sector in Singapore as demand remains limited coupled with an expected uplift in rental rates as the economy recovers.


Risk in the SREITs sector increases. Although we do not expect the i) global outlook, ii) high liquidity and iii) prolonged low interest rate environment to change in the near term, a closer examination indicated that if any of these factors are to change, it could potentially result in a sell-down in SREITs. In our view, given the high sector valuations, the risk-reward profile is less sanguine than before. We, therefore, introduce a new return gearing metric that takes these factors into account to study the relationship between share price, risk and return.


Maintain NEUTRAL on rich valuations; positive bias remains. On the back of i) flattish outlook in the various SREITs subsectors; ii) high valuations of S-REITs; iii) lack of growth catalysts in the near term; and iv) rising risks in the SREITs sector, we maintain our NEUTRAL view in the SREITs sector. However, positive bias remains if more liquidity flows into the market due to the latest QE program from Japan.

S-REIT: Are We Blinded By Yield?

In this low interest environment, investors have been actively seeking yield through investments in dividend paying stocks and REITs. However, the recent sell-off of Keppel REIT by Keppel Corp have sparked the question: Are we overpaying for S-REITs?

Sale Of K-Reit Stake
In the past week, the sale of Keppel Reit (K-Reit) by Keppel Corporation to Goldman Sachs has sparked the discussion of the overvaluation of S-REITs. This, the result of buying behaviour exhibited by investors chasing yield. This is the second divestment of K-Reit by Keppel Corp this year following the sale of stake through a placement to unknown buyers arranged by Barclays Bank.

Goldman Sach purchased 180 million units at $1.555 apiece which is a 6.7 percent stake in Keppel-REIT from Keppel Corp. The placement price of $1.555 was a 3.1 percent discount to the market price of $1.605 on the day the announcement was made. Based on the placement price of $1.555 and the dividend of $0.0777 per share paid to investors for FY2012, the implied yield for Goldman Sachs on K-Reit will be 5 percent compared to 4.84 percent retail investors based on the price of $1.605.

Liquidity And Chasing Yield
In the current low-interest environment with Singapore Government 10-year bonds yielding only 1.6 percent, investors in Singapore have been actively seeking yield from the market thus boosting liquidity. With such ample liquidity, Singapore has been attracting initial public offerings (IPOs) of various REITs and Business Trusts (BT) for IPOs.

This year alone, we saw the IPO of Mapletree Greater China Commercial Trust (REIT), Croesus Retail Trust (BT) and Asian Pay Television Trust (BT). Despite the large issues from these IPOs, more REIT IPOs are on the way.

Speculation is rife that companies such as SPH, OUE, Hoo Bee and Banyan Tree are looking to spin off assets to form the basis of REITs which will then list on the Singapore Exchange. A recent update from SPH mentioned that it expects to raise about $540 million from an asset spin-off (Paragon and the Clementi Mall) into a REIT. The IPO of this REIT is expected to be in early July.

Despite having new IPOs of REITs and BTs, there is still ample liquidity in the market which has led to the compression of yields of REITs. The compression was mainly attributed to the higher prices of REITs which have lead S-REITs to trade at an average of 1.24 times Price-to-Book based on reports by OCBC Investment Research.

K-REIT – Value Affirmation?
Looking back at K-REIT, the fact that it is able to attract institutional investors like Goldman Sachs can be viewed as value affirmation and a positive outlook to S-REITs.

K-Reit currently owns the highest-quality office portfolio among office Singapore Office REITs including prime office buildings such as Ocean Financial Centre, One Raffles Quay and Marina Bay Financial Centre Towers 1 and 2 which makes up 80 percent of its portfolio by net leasable area.

With its prime portfolio, K-REIT attracted major investors such as Temasek Holdings and Capital Group which owns a 2.8 and 1.33 percent stake in Keppel-REIT respectively. This affirms the value of K-Reit and its prospect but at the same time proves the point that it seems to be be currently overvalued by investors.



Source: FactSet, table on K-REIT’s brokers’ recommendations

Investing in a Low Yield Environment
When investing in REITs, it is important to consider the sponsor of the REITs, this particularly so after lessons learnt from the Lehman crisis. REITs with strong sponsors such as Mapletree Logistics Trust weathered through Lehman crisis despite the credit crunch. While REITs with weak sponsors such as MacarthurCook Industrial REIT(now known as AIMS AMP Capital Industrial Reit) almost went bust.



Source: FactSet. chart comparing the returns of AIMS AMP Capital Industrial REIT and Mapletree Logistics Trust (5 year horizon)

Bond ratings of a REIT is another factor to look at as it plays a huge role in the ability and cost for financing in REITs. Bond ratings and borrowing costs have an inverse relationship which means that the higher the credit rating of the company, the lower the cost of financing.

It is also favourable for REITs to obtain investment grade ratings as institutional investors like insurance companies have been constantly seeking for such bonds since the Lehman crisis as stricter risk mandates have kicked in. Having insurance companies as holders of the bonds are favourable as they tend to buy and hold to maturity which will bring stability to bond prices.

To sum up all the points, no matter how good the quality of the investment is, it will not be a good investment if you overpay.

Investors need to be prudent in picking the REITs not only in the quality of the assets but also the cost of investment. If Goldman Sachs is receiving 5 percent yield, why should retail investors settle for less?

I think they are way over valued. It is safer to go after more reputable IPos in the time being. Especially the government backed ones.

Paragon Mall value soars, mall to be injected into SPH REIT

The media group Monday announced that Paragon and The Clementi Mall will be spun off into the REIT. SPH fully owns Paragon and owns 60% of The Clementi Mall. It also owns 70% of The Seletar Mall.

Chan said The Seletar Mall would also be sold to the REIT when it is ready.

Paragon is being sold to the retail REIT for S$2.5bil.

http://biz.thestar.com.my/news/story.asp?f...14&sec=business

REITS seem to be falling. Looks bad for SPH stake holders.

SREITs – MayBank Kim Eng

Volatility Here To Stay; Underweight


Clear and present danger. We expect the current “QE-inflated growth” to run out of steam in the months ahead and S-REIT prices will continue to rationalize. Despite our regional economics’ team’s expectations that QE will persist through 2013, the fact that Bernanke’s mere hint1 of QE tapering on 22 May had driven the S-REITs down by 9.4% by 3 Jun showed how jittery investors have become with yield plays. While some will find S-REITs to be still attractive, we believe fears of impending stimulus withdrawal and rate hikes overhang will cap further upside. Downgrade to Underweight and switch to developers (prefer CapitaLand, Keppel Land, CMA and Wing Tai). For those who must be in S-REITs, we prefer the retail REITS (Suntec REIT, CapitaMall Trust and StarHill Global REIT).


Interest rate risk rising. The SG government ten-year bond went up from 1.56% on 22 May (the day of Bernanke’s Congressional testimony) to 1.86% (30 bps) within a span of five working days, while the DPU yields of S-REITs expanded from 5.1% to 5.7% (60bps). It appears that the market was then pricing in future rate hikes of 30 bps, pending uncertainty over US exit strategy, especially since Bernanke left the door opened to both downward AND upward adjustment depending on how the economy actually does. Another risk could also be the more crowded space amongst S-REITs investors (including private wealth clients), some of whom we understand to have geared up (and thus more susceptible to interest rate hikes) for a “carry trade” on S-REITs. At this writing, the market has since narrowed DPU yields back to 5.6%, ~20bps higher than the 30bps rate hike correction.


Ample QE till September at least but… Our regional economics team believes that current ample liquidity conditions will continue till Sep 2013 at least. They expect QE3 to persist through 2013 and no rate hike in the US before 2015. The Fed is expected to continue its unprecedented USD85 billion a month bond buying (comprising USD40b in mortgage securities and USD45b in treasuries) as long as two key indicators – unemployment and core PCE (personal consumption expenditures) inflation – remain beyond the Fed’s selfimposed tolerance limits of 6.5% and 2% respectively. Nonetheless, given the forward pricing nature of markets, we believe that sporadic corrections for S-REITs are still imminent in 2H13 and take a closer look at trough valuations for FY13.


Volatility will not subside. In this economic climate, we believe SREITs’ trading will get more volatile. In terms of trough valuations, we benchmarked against average yield spreads of S-REITs with the highest FY13 street estimate for SG government ten-year bond of 2.25%. If risk-free rate rises to that level, the downside risk to S-REITs will be a fall in prices down 10% from current levels and most severe for Office REITs (-11%), followed by Industrial (-5%) and then retail (-2%). This assumes negligible DPU growth, which is modest for S-REITs in FY13 (sub-par 7% from 10% in FY12).

Singapore latest REIT coming up is controlled by the wealthy Riady family of Indonesian origin.

REITSWEEK.COM : OUE REIT Receives approval from SGX

The firm has also revealed that the REIT, christened the OUE Hospitality REIT, will be led by Mr. Chong Kee Hiong as Chief Executive Officer and Executive Director of the Manager. Mr. Chong was previously the Chief Executive of The Ascott Limited, the serviced residence arm of Singapore-based property firm CapitaLand.

Just out of curiosity. What are the tax advantages of REITS in Singapore. If say a company decides to convert it's property holdings into a REIT, how much tax benefits will that company enjoy as compared to before. Thanks

In SG, I believe its similar to MY.

When the company converts into a Reits holding, they have to pay out 90% of their earnings in order
that they enjoy the tax benefits. In SG, when the company does that, tax for Divs is zero.

But I thought the same apply for all SGX shares.

Sure Kah ?

If all listed companies in SGX do not pay taxes , Govt got to eat grass