Why is the Singapore REIT market going so strong after two years of COVID-19?

SINGAPORE: Singapore real estate investment trusts or S-REITs have emerged as a resilient segment of the local stock exchange in the past two years. 

Traditionally a key pillar of the portfolios of individual investors in Singapore, the iEdge S-REIT Index, regarded as the S-REIT benchmark, reported a total return of 5.2 per cent since the start of 2020 to Nov 17.

This was despite S-REITs raising new equity from unitholders, creating additional units and leading to potential dilution risk. In the past 23 months, S-REITs raised a total of S$8 billion through placements and rights issues led by mega-issuances from Ascendas Real Estate Investment Trust and Frasers Commercial Trust. 

Most S-REITs largely maintained their dividends, compensating for the fall in unit prices in this period. 

Global financial markets including S-REITs initially crashed when COVID-19 became a pandemic, with investors panicking and selling liquid financial assets.  For investors daring and savvy enough to put money to work during the trough in end-March 2020, total returns from capital gains have been a whopping 57 per cent. 

Despite headlines on troubles in the retail space and how work-from-home has made offices redundant, occupancies measured by leases have remained high for S-REITs holding shopping malls and offices in Singapore, with little problems in rental collection, even if fewer are using these spaces. 

In the hardest hit hotel sector, the fall in physical property asset value was contained to less than 10 per cent at a portfolio level among the S-REITs tracked by OCBC, a good outcome despite the pandemic curbing travel.

Hospitality REITs will likely need time to recover and could do better in a 24-month timeframe as borders reopen further. 

S-REITs today generate a significant volume of trading activity for the stock exchange - about one-fourth of the daily turnover before COVID-19. Primary equity markets in Singapore also skew towards S-REITs. 

S-REITs, at S$110 billion, represents 12 per cent of Singapore&rsquo s whole equity market by market cap &ndash a figure that is 6 per cent for Australia and only 2 per cent for Japan,  the other two top REIT markets in the Asia-Pacific with large domestic economies.

WHY S-REITS STILL ATTRACT SO MANY INVESTORS

The top-performing Singapore stock in the past 23 months goes to iFAST Corporation, an investment products distribution platform, which generated total returns of 771 per cent during this time, superseding the Bloomberg Bitcoin Galaxy Index at 750 per cent. 

This is lower than the 1,131 per cent on the Bloomberg Galaxy Crypto Index tracking cryptocurrencies.

Still, S-REITs and the Singapore commercial property market continue to attract significant investor attention. 

Investors in Singapore are very familiar with the nuts and bolts of running a property, and understand how policies like stamp duties, urban planning, zoning, tenancy and ownership rules influence whether and when investors should buy an investment property and what to look out for in assessing a property&rsquo s attractiveness.

Many like the idea of owning a passive, stable and recurring income stream. S-REITs generate fairly stable revenue, with the iEdge S-REIT Index reporting revenue per unit of S$132.5 in 2019.

Though it dropped 6.3 per cent in 2020, analysts expect a rebound to S$135.6 this year.

S-REITs are a good source of income. Qualifying S-REITs are encouraged to pay gains to unitholders instead of hoarding profits as they not taxed on dividends distributed to unitholders.

The key challenge is share dilution when S-REITs need to raise to acquire new properties.

Past transactions that have stirred market discussions  include K-REIT Asia&rsquo s (now known as Keppel REIT) 87.5 per cent interest in Ocean Financial Centre in 2011, Ascott Residence Trust&rsquo s acquisition of Ascott Orchard Singapore, Citadines City Centre Frankfurt and Citadines Michel Hamburg in 2017 and Lippo Malls Indonesia Retail Trust&rsquo s acquisition of Puri Mall in 2021. 

S-REITs are also regulated as a collective investment scheme under the Securities and Futures Act, where there is a 50 per cent cap on the leverage limit for S-REITs to keep credit risks in check. As listed entities, S-REITs also follow SGX rules on the disclosure of information and the right for minority investors to vote on major matters.

S-REITS MORE ACCESSIBLE THAN EVER

Until S-REITs were launched in July 2002, the commercial property market was inaccessible to most individual retail investors, with ticket sizes of each standalone commercial property in the millions and billions of dollars.

Today, all it takes is S$230 at last Wednesday&rsquo s prices for an individual investor to buy into CapitaLand Integrated Commercial Trust (&ldquo CICT&rdquo ), Singapore&rsquo s largest REIT, and enjoy a portion of CICT&rsquo s rental income from shopping malls and offices. 

Few investment opportunities provide such stability for 4 to 7 per cent dividend yield per year. It&rsquo s little wonder  such investment classes with a dividend income and the potential for capital gains appeal to investors with a neutral risk profile at Singapore&rsquo s median age of 42. 

Singapore has maintained an encouraging ecosystem for the development of S-REITs. Regulatory uncertainty is minimised as regulators routinely seek industry feedback from REIT managers, investors and lawyers before introducing new rules. 

The market has grown to include fund managers who invest in S-REITs as their specialty, REIT exchange traded funds and REIT derivatives. 

Bank lenders and bond investors in Singapore are highly familiar with S-REITs, together providing a pool of liquidity that allows the S-REIT market to grow bigger. Brokerages are also prepared to lend individual investors buying larger amounts of REIT units.

WILL GAINS IN S-REITS CONTINUE?

The bigger question is whether we will continue to see capital gains in the coming 12 to 24 months as interest rates rise.  

In a world where stock market prices are affected by sentiments, Reddit fads and breaking news, S-REITs  continue to see strong investor demand because their valuation is backed by commercial properties where asset value has seen a continued upward trend.

Indeed, S-REIT indices are not a good representation of the underlying economy. They are weighted towards larger S-REITs, rather than each S-REIT&rsquo s contribution to the Singapore economy. 

The iEdge S-REIT&rsquo s top five components make up 43.3 per cent of the index which have an outsized influence on total returns. 

Three are large-cap industrial REITs with industrial properties in Singapore and countries across Asia-Pacific, Europe and the United States &ndash in a world where logistics, data centres, business parks and manufacturing facilities have been resilient through the pandemic. 

The remaining two are large-cap commercial REITs owning quality assets with tenants largely staying put despite the economic downturn, with occupancies remaining above 90 per cent. 

Beyond the broad index, S-REITs that hold hotels and shopping malls located in the city centre have been dragged by the pandemic. With the city centre hollowed out as we work from home and international travelers non-existent, these S-REITs have underperformed Industrial REITs.

Furthermore, the S-REIT industry has been kept buoyant by an inflow of capital. The broad money supply in Singapore has surged by 10.9 per cent year-on-year as of September. With interest rates on cash near-zero, all that money needs to go somewhere.

The S-REITs  market is unlikely to cool anytime soon. There is momentum.  Thirteen out of the 80 IPOs with primary share offering in Singapore since 2016 were S-REITs raising S$5.6 billion collectively at an average offer size of S$430 million.

Outside of S-REITs, a further S$2.7 billion was raised for two listings, Kakao Corp, the Internet company global depository receipt listing and NetLink NBN Trust, a business trust which holds infrastructure assets.

The remaining 65 had an average offer size of S$28 million &ndash small cap listings with limited liquidity. 

Tellingly, the two upcoming IPOs  in Singapore - Daiwa House Logistics Trust and Digital Core REIT - are both S-REITs. 

The equity analyst community is still optimistic and forecasting a rise in S-REIT dividends in the next 12 to 24 months. 

Driven by the growth and resiliency of industrial assets, particularly logistics warehouse and data centres, the Big Three industrial REITs of Ascendas Real Estate Investment Trust, Mapletree Logistics Trust and Mapletree Industrial Trust also recorded average total returns of 15.6 per cent in the past 23 months.

DON&rsquo T DISMISS SGX

Looking ahead, Singapore investors should not be so quick to dismiss the SGX, given the current slew of corporate restructuring exercises with the potential for capital gains, which may not be immediately apparent to new individual investors in the market.

Buying S-REITs is likely to remain a cornerstone investment strategy for many individual investors. The more pertinent decision points remain how much S-REITs should feature as a percentage of one&rsquo s investment portfolio and which specific ones to invest in.

Still, until a next financial crisis with significant liquidity stress, we are unlikely to repeat the kind of capital gains seen from March 2020 to date in S-REITs. 

A lot of the negatives has since been priced in, with the broad iEdge S-REIT Index trading at 1.1 times the price-to-book value, indicating that the market cap of the S-REITs as a broad basket is now higher than the value of the underlying properties.

 

 

Mapletree Commercial Trust ' placed for recovery' , stronger 2HFY22 anticipated: Maybank Kim Eng​

 

 

Maybank Kim Eng&rsquo s Chua Su Tye remains sanguine on  Mapletree Commercial Trust (MCT)following its 1HFY2022 ended September results announcement on Oct 27.

Chua has kept his &ldquo buy&rdquo rating for the counter with an unchanged target price of $2.35. &ldquo The results were in line to consensus&rsquo and our estimates, and with 1H22 revenue/NPI/DPU at 47% of our FY2022, we have kept our forecasts unchanged,&rdquo he remarks in a Oct 28 research note.

The way Chua sees it, MCT will have a stronger 2HFY2022, underpinned by rising office demand, and improvement in VivoCity&rsquo s operating metrics alongside a gradual reopening. 

He notes that despite a slower q-o-q performance, MCT reported stronger y-o-y performance in 1HFY2022, with revenue and NPI up 11.5% and 10.7% respectively, driven by lower rental rebates and the compensation received from a lease pre-termination at mTower. 

Portfolio occupancy climbed to 93.3%, up from 92.6% in 1QFY2022 with improvements across all its assets, except Mapletree Anson. 

Meanwhile, revenue and NPI at VivoCity fell 20.5% and 22.7% on a half-year basis, but was up 2.6% and 4.0% respectively on a q-o-q basis on the back of higher occupancy, which improved from 97.7% to 98.6%, and with committed occupancy higher at 99.6%. 

Chua has a flattish outlook for rent reversions at Vivocity following the 3.5% recorded for the 1HFY022, with upside risk from further easing restrictions.

MCT&rsquo s assets under management were up 0.5% at $8.8 billion, while gearing remains low at 33.7%. Chua notes that MCT&rsquo s growth profile is stronger from its MBC assets, which now contribute some 43% of AUM, ahead of retail assets at around 36%. 

" While a $1.8b billion debt headroom (at 45% limit) offers deal options, and management is eyeing AUM growth, visibility is low given tight office cap rates and a limited sponsor Singapore pipeline,&rdquo he comments.

Chua highlights that valuations are undemanding at 4.5% dividend yield, with better DPU visibility from its MBC assets, and added traction from VivoCity&rsquo s recovery into the coming quarters. 

 

Mapletree Commercial Trust grows its revenue and property income on lower rental rebates, lease termination compensation

MAPLETREE Commercial Trust  Mapletree Com Tr: N2IU 0%  ' s gross revenue for the half-year of FY 2022 to September rose by 11.5 per cent, while its net property income improved 10.7 per cent, mainly due to lower rental rebates as well as compensation received from a pre-terminated lease.

The results filed by the trust' s manager, Mapletree Commercial Trust Management, to the Singapore Exchange on Oct 27 indicated that distribution per unit (DPU) was up 5.3 per cent to 4.39 Singapore cents from 4.17 cents. Payment is scheduled for Nov 30.

Mapletree Commercial Trust' s gross revenue stood at S$243.7 million for the half-year, up from S$218.7 million a year earlier. And net property income came in higher at S$189.9 million, up from S$171.5 million for the corresponding period of FY 2021, as all properties recorded a higher year-on-year contribution.

Its distributable income grew 18.7 per cent year on year to S$146.5 million from S$123.4 million.

Mapletree Commercial Trust Management noted that the trust had achieved portfolio rental reversion of 2.3 per cent for H1 FY2022, with committed occupancy at 96 per cent as at end September.

Mapletree Commercial Trust reported that its total investment value inched up to over S$8.7 billion, marginally higher by 0.5 per cent than that at Mar 31, resulting in a flat net asset value per unit of S$1.72.

Mapletree Commercial Trust has its properties all in Singapore, four in HarbourFront and Alexandra, including the shopping mall VivoCity, and one in the central business district.

It added that its aggregate leverage was 33.7 per cent, with the average term to maturity of debt being 3.8 years, weighted average all-in cost of debt at 2.42 per cent per annum and the interest coverage ratio approximately 4.8 times on a 12-month trailing basis, as at end-September.

It said that it has 72.6 per cent of total debt of about S$3 billion on fixed rates, while no more than 24 per cent of debt is due in any financial year.

 

10 S-Reits yielding long-term annualised returns

THE 10 best performing S-Reits and property trusts with over a 10-year listing history have averaged 12.5 per cent in 10-year annualised total returns. On an absolute basis across the 10-year period, these 10 trusts have generated total returns averaging 240 per cent as Reits continue to be an asset class of choice for the longer horizon.

Comparatively, the 10 have also outperformed major Asia-Pacific Reit markets which have yielded 10.3 per cent in average total returns for the same period.

Of the 10, the top five trusts Mapletree Industrial Trust  Mapletree Ind Tr: ME8U -0.68%  , Mapletree Logistics Trust  Mapletree Log Tr: M44U -0.98%  , Mapletree Commercial Trust  Mapletree Com Tr: N2IU -2.4%  , ParkwayLife Reit  ParkwayLife Reit: C2PU -1.22%  and Aims Apac Reit  AIMS APAC Reit: O5RU -0.64%  , were also among Asia-Pacific' s 20 best performing Reits with a longer trading history.

Three of these are S-Reits sponsored by Mapletree Investments, which owns and manages over S$66 billion of data centre, industrial, lodging, logistics, mixed-use, multifamily, office, residential and retail properties.

Mapletree Industrial Trust (MINT) listed in October 2010 with an initial investment portfolio of 70 Singapore industrial properties valued at S$2.1 billion including business parks, flatted factories, stack-up/ramp-up buildings and light industrial buildings.
Today, the trust has tripled in portfolio with assets under management of S$6.7 billion across 114 properties in Singapore and North America. In terms of asset mix, MINT has also diversified with acquisitions into high-tech buildings and data centres making up 20.9 per cent and 39.8 per cent respectively. Its latest acquisition of 29 data centres in the United States makes it one of the largest owners of data centres among Asia-Pacific Reits.

Mapletree Logistics Trust (MLT) was one of the first Mapletree Group S-Reits to be listed in July 2005 and was the first Asia-focused logistics Reit. Its portfolio of properties has swelled from 15 properties worth S$422 million to 163 properties worth S$10.7 billion across nine countries in the Asia-Pacific.

MLT now has a diversified tenant base of 752 customers with close to 75 per cent of its portfolio serving consumer-related sectors.

Mapletree Commercial Trust (MCT) listed in April 2011 with three properties located in Singapore valued at S$2.8 billion. Its enlarged portfolio value has since trebled and comprises five Singapore properties worth S$8.7 billion.

ParkwayLife Reit (PLife) listed in August 2007 with just three properties in Singapore - Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital with a combined value of S$775 million. Fourteen years on, it has almost trebled its portfolio value at S$1.99 billion across 53 properties in Singapore, Japan and Malaysia and considers itself to be one of the largest listed healthcare Reits in Asia.

PLife recently completed its third strategic recycling initiative with a divestment of a non-core asset and acquired two nursing homes in Japan, increasing its geographical coverage and further diversification of age-care tenants.

Some may remember Aims Apac Reit as MacarthurCook Industrial Reit which listed in April 2007 with a portfolio of 12 industrial properties in Singapore valued at S$316 million.

The Reit has since rebranded itself in 2019 and has grown over five times in size with a portfolio value of S$1.7 billion across 28 properties in Singapore and Australia.

Its tenant base of 188 tenants has also diversified across the years, and include resilient sectors such as logistics and warehouses, bio-medical and life science, telecommunications and data centre operators accounting for seven out of its top 10 tenants. SGX RES

 

 

Analysts mostly neutral on Mapletree Commercial Trust' s 1QFY21/22 performance

MCT reports 22.9% increase in NPI amid higher revenue