Singapore REITs will continue to do well for the rest of the year on the back of strong rental reversions and tight supply in office space, according to analysts. Several research houses have put out a buy call for most real estate investment trusts ahead of their third quarter earning reports.
When the US housing credit crisis spooked financial markets in mid-August, REITs were among those that came under selling pressure.
These counters gave up some 10% over July and August.
Although the overall market has recovered, REITs still have some way to go before they regain their peaks.
MapleTree Logistics Trust, for example, is still about 17 percent below its all-time high.
Analysts said fundamentally, Singapore REITs remain strong.
"The underlying physical market is very strong, we're seeing very strong rental reversions on the office and retail properties. We are also seeing very strong acquisition activity which will drive their dividends and distributions," said David Lum, Senior Analyst, Daiwa Institute of Research.
REITs that are diversified out of Singapore, such as MapleTree Logistics Trust and Ascott Residence Trust, are seen as attractive.
Others like Suntec REIT and CapitaCommercial Trust are also viewed as reasonable with strong growth earnings expected.
Analysts are expecting rental increases to continue into the 4th quarter, resulting in stronger dividend growth for office REITs.
Said Lum: "The near term risk is that acquisitions might be more difficult going forward, because right now it's very difficult for an office REIT to acquire office property without income support from the sponsor. We're in a situation where the yields are being driven by very aggressive, property funds and other REITs competing for the same assets.
"It doesn't look like a concern right now but at some point, it might get a little risky." - CNA /ls
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