Chart of the Day: S-REITs up 28.7% YTD

They outperformed even major REITs markets such as US, Australia, and Japan.

Maybank Kim Eng reported:

The Asian REITs (S-REITs, J-REITs, and HK-REITs, excluding M-REITs), outperformed the non-Asian REITs (US-REITs, UK-REITs, A-REITs) in terms of yield spreads partly due to higher borrowing costs in the West (consequence of US/European deleveraging) and Australia.

With the exception of M-REITs, the Asian REITs incur average cost of borrowing (sector average) of ~1.5%-3.1%, much lower than the 5.5%-6.9% expensed by non-Asian REITs.

We noted that despite risk-free rates being low in the US (1.7%) and UK (1.8%), the actual borrowing costs to companies on the ground are relatively higher, compared to Asia. Western banks have become parsimonious in their lending vis-à-vis the robust loan growth situation amongst Asian banks.

From our observations, A-REITs and UK-REITs have average cost of borrowings much higher than normalized cap rates, rendering DPU yields to be trading near cap-rates levels. As a result, yield spreads are much lower in comparison.

For US-REITs, the high borrowing costs are partly offset by their higher cap rates, but this is still insufficient to cover the 178-211 bps yield spread lag behind Asian REITs (excluding M-REITs).

In M-REITs case, both the cost of borrowing and risk free rates are much higher than S-REITs, J-REITs and HK-REITs, resulting in much lower yield spreads.

Click the image below to enlarge.