Friday, July 31, 2009


Trusts' resilience boosts Reit indexBetter than expected results from Reits for Q2, revised GDP forecasts lead investors to turn positive on outlookINVESTORS are heaving a sigh of relief - and putting some money back into the stock market - following better-than-expected results from some real estate investment trusts (Reits).
The FTSE ST Real Estate Investment Trusts Index has risen by almost 4 per cent on heavier trading volume since Reits started posting results a week ago. It closed at 494.82 yesterday.Generally, results released so far 'are either in line, if not slightly above' expectations, said DBS Vickers analyst Lock Mun Yee.Despite concerns about falling rents and occupancies in the office sector for instance, CapitaCommercial Trust (CCT) and K-Reit Asia have managed to post year-on-year increases in distributable income and distribution per unit (DPU) for their latest financial quarter.CCT's operating results exceeded the expectations of OCBC Investment Research analysts Meenal Kumar and Foo Sze Ming. It was 'able to achieve new rents 45 per cent higher than previously signed rents, despite the 17.5 per cent quarter-on-quarter decline in Grade A office rent in 2Q 2009'.
Some retail Reits also displayed resilience amid the recession. Frasers Centrepoint Trust, which manages a portfolio of suburban malls, achieved a slightly higher DPU for the last financial quarter compared with a year ago. And considering how the hospitality industry has been hit by the downturn and the spread of H1N1 flu, the year-on-year fall in Ascott Residence Trust's DPU in the latest quarter did not surprise many.
In fact, the market could have been comforted by the trust manager's observations - that the sector is showing signs of stabilisation. Ascott Reit's unit price has gained more than 9 per cent since results were released last Thursday morning.Of course, investors' outlook could have improved even before they got a glimpse of the Reits' results.
The government recently revised its GDP forecast upwards and stock markets have been enjoying a long rally. Ms Kumar and Mr Foo believe that 'the price performance is more a function of outlook rather than Q2 performance'. Looking back further, the FTSE ST Real Estate Investment Trusts Index breached the 400-point mark in as early as May, and has risen by more than 16 per cent since.While market forecasts have become rosier, a robust recovery has yet to take shape and investors could remain jumpy.Ms Kumar and Mr Foo advise investors to continue paying attention to Reits' balance sheets - the risk of falling asset values still exists and that could increase gearing levels. DBS Vickers' Ms Lock also said that Reits' operational strength will come into focus, as they try to maintain earnings under 'moderated economic conditions'.



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