In the 2H18 to-date (29 June-3 Dec 2018), the three best-performing REITs with office assets were Keppel REIT (+9.0%), CapitaLand Commercial Trust (+6.5%), and Suntec REIT (+5.7%). The trio averaged a total return of +7.1% over the period, bringing their YTD, 3Y and 5Y total returns to -6.6%, +45.0% and +48.8% respectively.
Analysts have noted revived investor interest in Singapore REITs, driven by a flight to safety amidst rising risk-aversion. In November 2018, the REITs sector saw net inflow of S$28.1 million by institutional investors, reversing three consecutive months of net outflows.
Sentiment has also been buoyed by improving fundamentals in the domestic office segment. URA's office rental index for the central region posted a 2.5% QoQ gain in 3Q, a reversal from slower growth of 1.6% in 2Q, and marking its 6th consecutive quarter of growth.
There are 34 Real Estate Investment Trusts (REITs), five Stapled Trusts and three property trusts listed on SGX. The sector has a combined market capitalisation of close to S$100 billion, with Retail, Industrial and Office REITs making up the largest segments.
Office REITs are trusts engaged in the acquisition, development, ownership, leasing, management and operation of office properties. There are seven REITs on SGX that own office and/or commercial assets – for five of them, their portfolios span Singapore, Malaysia, Australia, the UK, Germany, Hong Kong, China and Japan. Both IREIT Global and Manulife US REIT own office properties located only in Germany and the US respectively.
In the second half of the 2018 year-to-date (29 June-3 December 2018), the seven REITs with office assets have registered a total return of 3.4%, bringing their YTD, three-year and five-year total returns to -3.4%, +36.5% and +40.9% respectively. The three best performers in the 2H18-to-date were: Keppel REIT (+9.0%), CapitaLand Commercial Trust (+6.5%), and Suntec REIT (+5.7%). The trio averaged a total return of +7.1% over the period, bringing their YTD, 3Y and 5Y total returns to -6.6%, +45.0% and +48.8% respectively.
The table below details the seven office REITs listed on SGX, sorted by 2H18-to-date total returns. Click on the trust name to view its profile in Stockfacts.
| Name | SGX Code |
Market Cap S$m |
Total Return 29 Jun - 3 Dec 18 (%) |
Total Return YTD % |
Total Return 3Y % |
Total Return 5Y % |
Dvd Ind Yld % |
P/B (x) |
|---|---|---|---|---|---|---|---|---|
| Keppel REIT | K71U | 3,986.1 | 9.0 | -2.7 | 42.8 | 32.6 | 4.7 | 0.8 |
| CapitaLand Commercial Trust | C61U | 6,590.2 | 6.5 | -4.5 | 58.3 | 62.7 | 4.9 | 1.0 |
| Suntec REIT | T82U | 4,753.7 | 5.7 | -12.8 | 33.7 | 51.2 | 5.6 | 0.9 |
| Frasers Commercial Trust | ND8U | 1,254.4 | 4.9 | 0.4 | 32.0 | 57.4 | 6.9 | 0.9 |
| Mapletree North Asia Commercial Trust | RW0U | 3,609.8 | 2.7 | -1.1 | 50.4 | 82.4 | 6.7 | 0.9 |
| IREIT Global | UD1U | 464.5 | 0.4 | 2.2 | 38.3 | 0.0 | 8.0 | 1.1 |
| Manulife US REIT | BTOU | 1,360.8 | -5.8 | -5.7 | 0.0 | 0.0 | 7.2 | 1.0 |
| Average | 3.4 | -3.4 | 36.5 | 40.9 | 6.3 | 0.9 |
Source: Bloomberg & StockFacts (data as of 3 Dec 2018)
Rising-Rate Environment
Singapore REITs are currently facing a higher interest-rate environment.
- Since January 2017, the Federal Reserve has raised US interest rates six times – with the most recent hike in September, and is widely anticipated to lift rates again at its last meeting for the year, on 18-19 December.
- Last week, Fed Chairman Jerome Powell said the Fed was getting closer to its range of estimates for neutral interest rates – the dividing line between tight and easy monetary policy – which markets interpreted to mean that the US central bank was turning dovish. However, Federal Reserve Bank of New York President John Williams yesterday gave an optimistic review of the US economy, and reiterated support for further gradual rate increases.
- According to a Phillip Securities report published in November, approximately 80% of S-REITs across various sectors have at least 70% of their debt hedged with fixed rates in anticipation of higher interest costs. The trusts also collectively average a gearing ratio of just under 35%, compared with the maximum allowable gearing of 45% set by the central bank.
- Rental and occupancy rates are more direct drivers of REIT performances over time, and may mitigate the impact of a rising interest-rate environment. For a recently published Market Update on S-REITs, click here.
Revived Investor Interest
Analysts have noted revived investor interest in S-REITs recently.
- There has been a flight to safety amidst rising risk-aversion, as US-Sino trade tensions continue to simmer, and global equity markets remain volatile.
- In November 2018, the REITs sector saw net inflow of S$28.1 million by institutional investors, reversing three consecutive months of net outflows in August, September and October, SGX data showed.
Strengthening Sector Fundamentals
Sentiment has also been buoyed by improving fundamentals in the domestic office segment.
- In the July-September 2018 quarter, office rents in Singapore's central region rose at a faster clip amid continuing strong demand, according to Urban Redevelopment Authority (URA) data released in October. URA's office rental index for the central region posted a 2.5% QoQ gain in 3Q, a reversal from slower growth of 1.6% in 2Q this year, and marking its sixth consecutive quarter of growth. The rental index is up 9.6% YoY.
- Islandwide vacancy rates for office space also eased to 12% at the end of 3Q, from 12.2% at the end of the previous quarter, marking the fourth straight quarter of compression, URA data showed.
- Chris Archibold, Head of Leasing at JLL Singapore, noted that occupier demand, coming from a wide spectrum of industries, has remained firm. “Good quality office space in the CBD is limited as most newbuilds are enjoying near full occupancy or commitment rates, while space vacated or to be vacated by relocating tenants has mostly secured replacements. This has continued to put upward pressure on rents,” he said in a recently published JLL report.
- CGS-CIMB Securities also noted in an October report that the 3Q 2018 financial results of Singapore-listed office REITs demonstrated continued strength of the office rental upcycle, and their portfolios remained well-occupied, holding at 83%-99% occupancy levels.
- With average Grade A rental rates improving over the last five quarters, positive or higher rental reversions are anticipated once these rental agreements, typically signed about three years ago, expire, Phillip Securities noted in its November report.
Did You Know
REITs and Stapled Trusts 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. Like stocks, REITs and Stapled Trusts have market risk – unit prices can move against the investor’s expectations. Other risks associated with a REIT or Stapled Trust investment can vary, and depend on the unique characteristics of each Trust (i.e. leverage ratio, cost of refinancing, alignment of management fees), as well as the geographical location and quality of the underlying property assets (i.e. concentration of properties, length of lease). Other risks associated with stock investing (i.e. price risk, volatility and liquidity risks) also apply.
