Singapore’s 31 REITs and six Stapled Trusts have averaged a 19% total return in the 2017 YTD. All these trusts have generated gains over the period which range from 5% for Fortune REIT to 34% for Sabana Shariah Compliant Industrial REIT.
Singapore REITs have a current gearing ratio limit of 45%. The 31 REITs and six stapled trusts average a 34.6% gearing ratio, which range from 25.6% for SPH REIT to 43.4% for Cache Logistics Trust. In addition to the type of property assets and geographical locations, varied gearing ratios may also serve as a differentiator for REIT Sector investors.
SGX also lists two REIT ETFs - the Phillip SGX APAC Dividend Leaders REIT ETF and NikkoAM-StraitsTrading Asia ex Japan REIT ETF which were listed on SGX in October 2016 and March 2017 respectively.
Singapore’s REIT Sector Average Total Returns at 19% YTD
In the 2017 year thus far, the SGX S-REIT 20 Total Return Index has generated a 20.4% gain, with the broader group of 31 Real Estate Investment Trusts (REITs) and six stapled trusts averaging 18.6% total returns.
As illustrated below the month-to-month gains of the SGX S-REIT 20 Total Return Index were relatively consistent from the last week of December 2016 through to the first week of September 2017.
SGX S-REIT 20 Total Return Index – Three Year % Gains
Source: SGX, Bloomberg (Data as of 11 September 2017)
As illustrated above, the SGX S-REIT 20 Total Return Index has also experienced some downturns particularly in the second half of 2015. This coincided with the building in of expectations of an interest rate hike in the United States at the end of 2015 which eventuated.
At that time markets had also built in expectations of multiple interest rates hikes in 2016, which did not eventuate, rather there was just the one hike at the end of 2016. This coincided with the SGX S-REIT 20 Total Return Index recovering from those preceding losses in the course of 2016. In the 2017 year-to-date, the REIT Sector has benefited from the same broad growth theme that contributed to strength in the Real Estate Management & Development stocks, in addition to the Banks.
Singapore REITs Maintain Lower Gearing Ratios vs. Global Peers
In January 2016 the leverage limit for REITs, which takes into account debt to assets and is also referred to as a gearing ratio, was increased from 35% to 45% of the REIT’s total assets. The previous 60% limit applicable with a credit limit ceased to exist.
In addition the development limit for the deposited properties of a REIT was increased to 25%. The Monetary Authority of Singapore (MAS) has also continued to allow stapled securities structures with a REIT component to operate without group operational limits – for more information on these change click here.
As illustrated below, the SGX S-REIT 20 Total Return Index maintains a gearing ratio of 33.8%, which compares to the MSCI World REIT Index (which is majority US-listed REITs) gearing ratio of 42.4%.
Debt/Asset Ratios of Comparative REIT Indices
Source: SGX & Bloomberg (Data as of 11 September 2017)
Gearing Ratios & Diversified Performances
The broader group of 31 REITs and six stapled trusts listed on SGX average a gearing ratio of 34.6%. These individual gearing ratios have been collated by REITAS and are based on financial reports filed for the quarter ending 30 June 2017.
Risks associated with a REIT investment vary depend on the unique characteristics of each REIT which can include gearing ratios. Gearing ratios for Singapore’s 31 REITs and six stapled trusts currently vary from 25.6% to 43.4%. These gearing ratios can vary for a multitude of factors including whether the trust is focused on an acquisition strategy or focused on managing existing property assets.
In the 2017 year-to-date, the 16 trusts with a gearing ratio below 34.6% have averaged a total return of 16.8% whilst the 21 REITs with a gearing ratio above 34.6% have averaged a 19.9% total return. The 21 trusts with the above average gearing ratio average a marginally higher distribution yield of 6.7%, compared to 6.5% for the 16 trusts with below average gearing ratios.
There has been more differentiation in the comparative performances of the five trusts with the lowest gearing ratios and the higher gearing ratios in the year thus far. Coinciding with the stronger performance of more cyclical sectors in the year thus far:
- The five REITs with the lowest gearing ratios - SPH REIT, Keppel DC REIT, Fortune REIT, EC World REIT and Frasers Logistics & Industrial Trust have averaged a 12.1% total return in the year thus far, and average a distribution yield of 6.1%.
- The five trusts with the highest gearing ratios - Cache Logistics Trust, IREIT Global, Mapletree Greater China Commercial Trust, Viva Industrial Trust and Mapletree Logistics Trust have averaged a 22.1% total return in the year thus far, and maintain an average indicative yield of 7.5%.
Note that REITs are also diversified by the type of property that they invest in, such as retail shopping malls office towers, industrial parks and logistic parks. Singapore REITs are also diversified by geographies with the Sector offering investors a choice of Singapore-based properties, overseas-based properties in addition to REITs that invest in property both in Singapore and overseas. Hence multiple factors have accounted for recent performances beyond gearing ratios.
The average gearing ratio of the 31 REITs and six stapled trusts at 34.6% is similar to the average gearing ratios for the trusts that make up the REIT Sectors of Australia and Malaysia, which are at 32.4% and 32.7% respectively. The trusts that make up the REIT Sectors of Japan average higher gearing ratios of 44.8% , while the trusts for Hong Kong’s REIT Sector average a gearing ratio of 28.0%.
As noted above, the trusts of Singapore’s GICS® REIT Sector maintain gearing ratios that currently range from 25.6% to 43.4%. This provides differentiation within the REIT Sector, when it comes the evaluating the impact of debt and interest rates.
As detailed in the table below, all 31 of the REITs with property assets and the six Stapled Trusts have generated positive returns in the 2017 year through to 11 September, with total returns ranging from 5.0% for Fortune REIT (in SGD terms) to 34.1% for Sabana Shariah Compliant Industrial REIT. To see more details on each of the trusts below in SGX StockFacts, click on the trust name.
|CapitaLand Mall Trust||C38U||7,482||2.110||11.9||16.7||34.7||5.3|
|CapitaLand Commercial Trust||C61U||5,331||1.740||17.6||24.4||35.2||5.4|
|Mapletree Commercial Trust||N2IU||4,417||1.530||10.0||14.9||36.4||5.7|
|Mapletree Industrial Trust||ME8U||3,290||1.860||12.8||18.4||29.8||6.2|
|Mapletree Logistics Trust||M44U||3,052||1.230||20.6||26.8||39.0||6.1|
|Fortune REIT **||F25U||3,029||1.600||-0.5||5.0||28.4||5.6|
|Ascott Residence Trust||A68U||2,534||1.180||8.9||16.3||32.4||6.7|
|Frasers Centrepoint Trust||J69U||1,974||2.150||13.2||18.1||30.0||5.5|
|CDL Hospitality Trusts *||J85||1,917||1.600||24.1||32.4||38.7||6.1|
|Frasers Logistics & Industrial Trust||BUOU||1,625||1.070||15.7||21.8||29.3||6.4***|
|Starhill Global REIT||P40U||1,614||0.750||0.7||5.6||35.3||6.7|
|Parkway Life REIT||C2PU||1,603||2.650||12.3||16.6||37.4||4.8|
|CapitaLand Retail China Trust||AU8U||1,466||1.640||20.1||28.3||35.3||6.3|
|Keppel DC REIT||AJBU||1,448||1.300||9.7||15.4||27.7||5.0|
|OUE Hospitality Trust *||SK7||1,398||0.790||19.7||26.3||38.2||6.5|
|Frasers Hospitality Trust *||ACV||1,384||0.750||16.2||20.4||34.1||6.5|
|Lippo Malls Indonesia Retail Trust||D5IU||1,257||0.440||18.9||26.8||30.6||7.9|
|Far East Hospitality Trust *||Q5T||1,221||0.670||10.8||16.4||32.8||6.3|
|Frasers Commercial Trust||ND8U||1,128||1.400||11.5||17.8||35.9||7.1|
|OUE Commercial REIT||TS0U||1,094||0.700||1.4||8.7||36.4||6.9|
|Ascendas Hospitality Trust *||Q1P||942||0.830||18.4||23.1||32.7||6.8|
|Manulife US REIT **||BTOU||929||1.280||7.1||15.5||30.4||7.2|
|Viva Industrial Trust *||T8B||912||0.940||24.5||31.7||39.1||7.8|
|AIMS AMP Capital Industrial REIT||O5RU||896||1.400||7.3||13.6||36.6||7.8|
|Cache Logistics Trust||K2LU||766||0.820||5.8||12.7||43.4||9.0|
|Soilbuild Business Space REIT||SV3U||756||0.730||13.3||21.1||37.9||8.3|
|EC World REIT||BWCU||611||0.780||2.6||8.9||29.2||7.8***|
|Sabana Shariah Comp Ind REIT||M1GU||505||0.480||26.3||34.1||37.0||7.9|
|BHG Retail REIT||BMGU||367||0.720||9.9||18.4||32.4||6.6|
Source: REITAS, Bloomberg & SGX StockFacts (data as of 11 September 2017). Note table excludes Saizen REIT.
* CDL Hospitality Trust, OUE Hospitality Trust, Frasers Hospitality Trust, Far East Hospitality Trusts, Ascendas Hospitality Trust and Viva Industrial Trust are Stapled Trusts.
** Note Fortune REIT is traded in HKD and Manulife US REIT is traded in USD however SGD equivalents are shown in table.
*** Based on annualised estimations.
ETFs based on REIT Indices
SGX currently lists two REIT Exchange Traded Funds (ETFs) – the Phillip SGX APAC Dividend Leaders REIT ETF (click here) and NikkoAM-StraitsTrading Asia ex Japan REIT ETF (click here) which were listed on SGX in October 2016 and March 2017 respectively. Both ETFs are tracking indices focused on REITs based in the Asia Pacific region. Both ETFs are non-SIP, that is Excluded Investment Products.
Did You Know?
REITs invest in a diversified pool of professionally managed real estate assets and raise capital to purchase primarily real estate assets, usually with a view to generate income for unit holders of the fund. This allows individual investors to access real property assets and share the benefits and risks of owning a portfolio of properties, which typically distribute income at regular intervals through dividends.
The risks associated with a REIT investment vary and depend on the unique characteristics each REIT and include factors such as gearing ratios, costs of refinancing, alignment of management fees, as well as the geographical location and quality of the underlying property investments. Aside from risks specific to REITs other risks associated with stock investing such as market risk, volatility and liquidity risks also apply.