S-REITs to see impressive results in 2019

Market watchers are bullish on real estate investment trusts listed in Singapore (S-REITs) due to favourable market trends, reported the Business Times.

One of the positive trends is an advantageous interest rate environment. For instance, the FTSE ST REIT Index rose by around 8.0 percent to close at 839.65 last Friday (22 Feb) since the US Federal Reserve’s Chairman Jerome Powell stated last November that interest rates were “just below” the range deemed neutral by the central bank. The interest rate set by the US Federal Reserve affects borrowing costs in Singapore.

“When interest rates have peaked and maybe potentially can go down, investors will gravitate towards investing in bonds or any asset classes when cash flow is assured… the same distributions REITs give you become more attractive,” said UOB Kay Hian analyst Jonathan Koh.

The lower interest rate will be beneficial for trusts that intend to purchase more properties, and the number of offshore assets held by S-REITs are forecasted to increase, noted Chua Su Tye, an analyst with Maybank Kim Eng.

“(For) REITs with higher debt headroom and those that have made some acquisitions in Europe or the UK, I think we can see some more activity this year.”

Moreover, S-REITs typically become more appealing to investors in times of global headwinds. “2019 is expected to be a year of elevated volatility amid prevailing geopolitical and policy uncertainties. This will be beneficial to safe-haven assets like S-REITs,” said DBS chief investment officer Hou Wey Fook.

Amidst the anticipated higher appetite for S-REITs this year, entities could launch their initial public offerings (IPO) to meet demand, noted Natarajan. These include the hotel portfolio of US investment company Urban Commons as well as a new trust by KBS and Keppel of various prime US offices.

Another favourable market trend is the lower supply of offices, hotels and industrial properties, said Natarajan.

Source: 25 February 2019, CommercialGuru