Singapore Reits offer highest dividend yields among developed markets

Singapore real estate investment trusts (Reits) have gone from last year's biggest losers to this year's best performers.
Singapore real estate investment trusts (Reits) have gone from last year's biggest losers to this year's best performers. PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - Singapore real estate investment trusts (Reits) have gone from last year's biggest losers to this year's best performers as their world-beating yields attract investors including BNP Paribas Investment Partners to Samsung Asset Management.

Singapore Reits, which mostly invest in malls, offices and industrial buildings, offer the highest dividend yields among developed markets, according to data compiled by Bloomberg. That's propelled a 8.9 per cent increase in the FTSE Straits Times Real Estate Investment Trust index this year as yield-hungry investors flock to the offerings amid record-low interest rates.

"We're overweight on Singapore Reits," said Jan Willem Vis, Amsterdam-based senior portfolio manager at BNP Paribas. "They're attractively valued compared to other markets. Reits are a very good alternative to bonds and they pay sustainable dividends."

International investors including BNP, Bank of New York Mellon Corp. and Samsung Asset have accelerated purchases of Singapore Reits since June, amid growing expectations central banks will keep interest rates lower for longer. Fund managers have bought 217.84 million units in the five biggest Singapore-listed Reits, the data showed.

The 7 per cent yield offered by Singapore REITs, exceeds 6 percent for those listed in Australia and the U.S. and Japan's 4 percent, according to data compiled by Bloomberg. The buying has helped the FTSE Straits Times Real Estate Investment Trust index erase most of 11 per cent slump last year, when it was the worst performer among Reits listed in Australia, the US, Japan and Europe. This year, the Singapore Reit index has beaten all those peers.

"We like industrial Reits as we're still seeing upward rental reversions for industrial and business parks," said Alan Richardson, a Hong Kong-based fund manager at Samsung Asset, which manages about US$169 billion globally. "I don't see much downside risks for Singapore Reits even if interest rates start going up."

Owners of industrial buildings and business parks are benefiting from demand for office space from bio-medical and social media companies, said Richardson. Samsung, BNY Mellon and Schroders Plc were among the buyers of Ascendas Real Estate Investment Trust since June, according to data compiled by Bloomberg.

Ascendas Reit has climbed 7 per cent this year, while Mapletree Industrial is up 13 per cent.

The city-state's Reits have also beaten the benchmark Straits Times Index, which has declined 1.8 per cent this year. Singapore 10-year government bonds yielded 1.87 per cent as of Oct 18.

Five-year bond yields are below zero in Japan and parts of Europe, including Switzerland and Italy, as central banks turn to negative rates to bolster sluggish economies.

Singapore Reits are being supported by tenant demand. Rents in business parks will hold up as additional supply is mostly already leased, while hospitality Reits will benefit from a rise in tourist arrivals. Office rents are expected to recover next year after a 10 per cent to 15 per cent decline this year, said Vikrant Pandey, an analyst at UOB Kay Hian Pte.

"Singapore Reits are attractive given their high yields in a low interest rate environment," said Kar Tzen Chow, a Kuala Lumpur-based fund manager at Affin Hwang Asset Management Bhd., which oversees about US$7.6 billion. "Some are able to sustain and even distribute higher dividends given their ability to increase rents."

Affin Hwang, which is overweight Singapore Reits, recently added shares of Mapletree Greater China Commercial Trust, which owns office and retail properties in mainland China and Hong Kong, Mr Chow said. It also holds Frasers Logistics, Mapletree Logistics and Croesus Retail Trust, whose shares have all gained at least 4 per cent this year.

"Dividends can be sustained and grown by a combination of asset enhancements, tenant mix adjustments and making earnings-accretive acquisitions," Jason Pidcock, a London-based fund manager at Jupiter Asset Management, said by email. Jupiter Asset was the second-largest buyer of Ascendas Reit shares during the quarter, according to data compiled by Bloomberg.

Not every one is bullish on Singapore's Reits. Daiwa Capital Markets analyst David Lum downgraded the sector to 'neutral' from 'positive' in August, saying a run up in prices had returned them to fair value. Daiwa's main concern was the unit prices of some large-cap Reits might not be sustainable if underlying fundamentals continued to deteriorate or if bond yields rose again, Lum said in an August note.

"The chase for yield drives people into equities," said Hans Goetti, Dubai-based chief strategist for the Middle East and Asia at Banque Internationale a Luxembourg, which manages US$40 billion. "Singapore Reits offer among the highest yields. The theme remains valid as central banks remain accommodative."