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Office S-REITs VS. Industrial S-REITs (4).

Wednesday, March 21, 2012

For some time now, I have been saying it is better to be vested in industrial S-REITs rather than office S-REITs. My research supports this idea.


Now, with the government imposing more cooling measures on residential properties, many investors turned their attention to industrial and commercial properties instead. This has hastened the rising prices of such properties.

Indeed, when a relative of mine called to enquire about Low Keng Huat's Paya Lebar Square, she was told that a modest office unit would set her back by $2,000 psf and the project was almost sold out!

Is it a good idea to pay top dollar to invest in commercial properties in Singapore now?

Over 2H11, we saw office rents peak as Grade A rents declined 0.5% QoQ in 4Q11 while Grade B rents fell by 0.4%. We expect further rental dips in FY12 and believe, from our channel checks, that Grade A rents has already fallen 3-5% QoQ in 1Q12. Going forward, we think office capital values could come under pressure with declining rentals (and) we now forecast office rentals to fall 10-15% in FY12.

Industrial REITs are likely to continue to post healthy YoY growth in distributable income and DPUs for the financial quarter ending 31 Mar, driven by completion of acquisitions, sound occupancy rates and possibly positive rental reversions. Four industrial REITs will also be concluding their financial years. We believe the REITs may likely experience revaluation gains in their portfolios.

Source: OCBC Research.

Related post:
Office S-REITs VS. Industrial S-REITs (3).

12 comments:

FoodieFC said...

Let it soar let it soar. Will do good for the REITS we have.

but again long term not so good. will translate to higher cost to us. as companies will pass the cost to us. and inflations goes up again. =(

AK71 said...

Hi FoodieFC,

For sure, there are always two sides to a coin. We will have to stay nimble footed and make sure we are on the winning side. :)

FoodieFC said...

Yes agree,I guess the consolation is that we are trying to ensure we keep up with the inflation rate and even try to beat it and try do more

Casey said...

Hi Ak,

I have to thank those analysts for projecting more negativity on the office reits even at such discounted price. If the market resonates to such remarks, it will be great opportunity to me to accumulate more. For industrial reits, it will be good if the price continue to soar, I will reduce them when other new opportunity comes.

Casey.

AK71 said...

Hi FoodieFC,

Yes, that is about as simple as we want it. Beat inflation and grow our wealth. :)

AK71 said...

Hi Casey,

For sure, that is the strategy to adopt. Sell overvalued assets and buy undervalued assets. :)

Ray said...

A stock is only worth as much as the next person who is queuing up to buy.
A beaten down stock will stay beaten down unless and until people see its value but with analysts pouring negativity on a stock, will it ever rise?

AK71 said...

Hi Ray,

There could be myriad reasons for stocks staying cheap or rising to ridiculous levels. I am not sure that analysts know everything. ;)

Some numbers are readily available from research houses and they save me some work. I take in the factual bits and usually ignore the buy, sell or hold calls.

AK71 said...

Industrial landlords continue to be very engaged in their capital management activities. For 3Q to-date, we note that a number of industrial REITs have launched several debt facilities, where the proceeds will be used to refinance part of their existing borrowings.

This is in line with our view that the industrial REIT subsector’s debt maturity profile will remain healthy, with limited refinancing risks in the near term. We also observe that there was a pickup in investment activity during the period. We estimate that the total subsector acquisition value for 3Q will be at S$182.9m. This significantly exceeds the S$66.0m acquisition size clocked in 2Q, albeit still lower than the S$678.2m value registered in 1Q.

We are currently maintaining our view that the subsector acquisition activity is likely to be skewed more towards smaller REITs.

Reiterate OVERWEIGHT view on the industrial REIT subsector.


OCBC Research, 27 Sep 12.

AK71 said...

(Singapore) was ... recently ranked the top logistics centre globally by the World Bank in the 2012 Logistics Performance Index.

Analyst said the latest plans to expand Changi Airport will ... cement Singapore's leading position in logistics and transportation ...


Source:
http://www.channelnewsasia.com/news/business/singapore/changi-airport-expansion/796830.html

AK71 said...

On the corporate front, Mr Tan said that given the uncertain macroeconomic environment in Europe, tight labour market and modest GDP growth in Singapore, companies’ earnings are expected to soften in the near term.

“According to latest figures by property consultants, the proportion of new office leases in Singapore dropped by half as companies cut costs,” he said.


Source:
http://www.channelnewsasia.com/news/singapore/redas-warns-of-record/1982848.html

AK71 said...

Reader:
noticed u don't talk abt office reits a lot, any reasons why? low yield, high gearing?
.
AK:
It has a lot to do with history. Years ago, I decided that investing in Industrial REITs would generally be more rewarding than Office REITs. The numbers were better. So, I acted accordingly. I had a series of blogs on this topic. Start with this one and go backwards to 3, 2 and 1 if you are interested.

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