Industrial, retail S-REITs ranked best performing

REITs from these sectors delivered the best rates of return and are the best picks moving forward, says Maybank Kim Eng.

Analyzing the 10 largest S-REITs since their IPO debut, the brokerage firm ranked them based mainly on rental income resilience, total rate of return, accretive distributions and the stability of their payouts.

Ascendas REIT topped the list followed by Mapletree Logistics Trust, CapitaMall Trust and Frasers Centrepoint Trust. Meanwhile, K-REIT Asia and CapitaCommercial Trust sunk to the bottom.

Here's more from Maybank Kim Eng:

We examined the total rate of return of the 10 largest S-REITs since their listing and put forward our pristine picks based on the stocks’ past track record of DPU accretions and projected performance in FY12F-13F. Rental income resilience, accretive distributions and stable payout track record are some of the other parameters we scrutinised.

Our top four S-REITs are CapitaMall Trust and Frasers Centrepoint Trust in the retail subsector, and Ascendas REIT and Mapletree Logistics Trust in the industrial subsector. Our top SELLs are K-REIT Asia and CapitaCommercial Trust as we see further downside risk in their DPU

Track record matters. The myth that S-REITs are good income-yielding instruments for retail investors has generated much debate. On the one hand, REITs proponents like the recurring distributions paid out from steady streams of rental income. On the other hand, naysayers argue that whatever REITs managers pay out in dividends, they will likely take back in the form of rights issues. We examined the total rate of return of the 10 largest S-REITs since their listing, namely, those with a trading history of at least five years, and put forward our pristine picks to ride through the impending economic down cycle.

Industrial and retail REITs top of the league. REITS in the more resilient subsectors like industrial and retail topped our league table, with CDL Hospitality Trusts, Frasers Centrepoint Trust and Ascendas Real Estate Investment Trust the best performers. K-REIT Asia was the worst performer, given the numerous equity cash calls it made to fund acquisitions. While past performance may not guarantee future returns, we take the view that our league table does provide some insights into the track record of the individual S-REITs.

Good mix of stability and growth potential. Rental income resilience, total rate of return, accretive distributions and stable payout track record are some of the parameters we scrutinised by delving into the operating history of the S-REITs since their initial public offering. Barring a full-blown European debt crisis, we also think that it is unlikely that S-REITs will be de-rated to the levels seen during the global financial crisis (GFC) due to stronger balance sheets and the absence of credit tightening.

Four S-REITs to ride through turbulence. Our top four S-REITs are CapitaMall Trust and Frasers Centrepoint Trust in the retail subsector, and Ascendas REIT and Mapletree Logistics Trust in the industrial subsector. Our top SELLs are K-REIT Asia and CapitaCommercial Trust as we see further downside risk in their DPU which would render valuations unattractive.