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Asia's best Reits may lose appeal as rally trims Thai yields

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Thailand's real estate investment trusts (Reits) have outperformed their Asian peers amid lower borrowing costs. The stellar performance, however, also reduced the allure of the much-loved sector as their surging prices trump yields.

[BANGKOK] Thailand's real estate investment trusts (Reits) have outperformed their Asian peers amid lower borrowing costs. The stellar performance, however, also reduced the allure of the much-loved sector as their surging prices trump yields.

A measure of Reits and property funds on the Thai exchange has rallied 30 per cent this year, beating a 27.5 per cent gain in the Bloomberg Asia Real Estate Investment Trust Index. The rally, which has propelled the Thailand measure to a record level, has trimmed its average dividend yield to about 4.7 per cent, near the lowest level in two years, according to data compiled by Bloomberg.

"The dividend yield of Thai Reits is too low following the rally in their prices," said Win Phromphaet, the Bangkok-based chief investment officer at Principal Asset Management Co, which oversees about US$4.8 billion of assets in Thailand. "The stretched prices puts that at risk of a possible big correction as their earnings fundamentals and outlook are not too rosy."

Yield-hungry investors worldwide have been piling into Reits as central banks across the globe cut interest rates amid economic growth concerns. Thai Reits have thrived this year even as many developers of residential properties, commercial estates and industrial land struggle with oversupply amid a decelerating economy.

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WHA Premium Growth Freehold & Leasehold Reit is the top gainer among Thai Reits with a 69 per cent rally this year. Its net income in the first half rose 38 per cent from a year earlier. Frasers Property Thailand Industrial Freehold & Leasehold Reit has risen 58 per cent. Hemaraj Leasehold Reit and Impact Growth Reit have each gained 49 per cent this year, while an index of property developers has slid 4.6 per cent.

"Most Reits have risen too fast relative to their earnings performance," said Chanpen Sirithanarattanakul, an analyst at DBS Vickers Securities (Thailand) Co in Bangkok. "Still, some investors are satisfied with the 4 per cent dividend yield amid the tough economic conditions and market volatility."

Singapore's benchmark index for Reits, which has gained 20 per cent this year, offers a dividend yield of 4.1 per cent based on the actual payout, according to data compiled by Bloomberg. A similar gauge in Hong Kong has a yield of 5.5 per cent, while one in Japan offers 3.4 per cent.

The rally in Reits has been this year's main bright spot for Thai equities even as foreign funds are poised for a third year of outflows following their record withdrawal of $8.9 billion in 2018. The benchmark SET Index has gained 3.4 per cent this year, with the measure of Reits the top gainer among the bourse's 28 industry groups.

"The outlook of Reits remains positive as the markets will still be volatile and interest rates will remain low," said Sumetha Lewchalermwong, chief investment officer at MFC Asset Management Pcl in Bangkok, which oversees about US$15 billion of assets. "Some equity investors are switching out of equity funds into Reits as they seek yields and lower volatility."

Mr Sumetha's MFC Property Wealth Fund, which mainly invests in domestic Reits, has rallied 34 per cent this year, the best performer among 302 equity funds domiciled in Thailand, according to data compiled by Bloomberg.

BLOOMBERG