Within the S-REIT Sector, the hospitality segment booked the highest net fund inflows and highest average total returns over the past 13 sessions, followed by the two pure-play data centre REITs. This follows the stapled hospitality trusts averaging flat total returns in 2022, while also drawing net fund inflows.
The trusts of the S-REIT Sector maintain an average debt-to-asset ratio of 37%. In 2022, the 15 trusts with below average ratios saw less than half the declines of the 21 trusts with above average ratios. The 15 trusts with lower debt-to-asset ratios have also booked marginal net fund inflows in early Jan.
Recent years have also seen around half of the trusts of the S-REIT Sector pursue acquisitions in efforts to further enhance unitholder value. Last night Mapletree Logistics Trust reported 3Q FY22/23 gross revenue rose 8.0% y-o-y to S$180 million, attributed to accretive acquisitions completed in 1Q FY22/23 and FY21/22.
Suntec REIT reported 3.4% y-o-y distributable income growth for FY21, with DPU growth of 2.5%. For challenges ahead, the REIT manager flagged the potential for rising interest rates, weaker exchange rates and higher energy costs to erode operational gains and impact distribution.
In recent years, the global appetite and performance of REITs, have had a significant impact on the local S-REIT Sector. From the end of 2019, through to 19 Jan, the S$ decline in total return of the iEdge S-REIT Index, FTSE ST REIT Index and the FTSE EPRA/NAREIT Developed Index have been almost identical with respective declines of -6.3%, -7.2% and -8.8%.
However, the correlation between the FTSE EPRA/NAREIT Developed Index and local REIT benchmarks has been weak since 3Q20 with the average 120-day rolling correlation coefficient below 0.25 through to Jan 19. This implies that the lack of day-to-day correlation, yet highly competitive returns, has seen the diversity of the S-REIT Sector provide a viable platform for global portfolio managers, in line with the platform’s development as a global hub for REIT listings.
Looking ahead to 2023, key areas of interest for the REIT Sector in 2023 include the impact of energy costs, higher interest rates, occupancy rates, rental reversions, acquisitions, and fundraising.
Aggregate Leverage of S-REITs
Ahead of the US FOMC commencing its Fed Funds Rate tightening on 17 March 2022, on average, close to 75% of the trusts of S-REIT Sector’s current debts were entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps (See here for more).
The US Fed Funds Rate ended 2022 at a 4.25% to 4.50% band, with the 1M Compounded SORA ending the year at 2.78%. The 40 REITs and property trusts of the S-REIT Sector ended the year with an average 37.0% debt-to-asset ratio, like the end of 2021 average debt-to-asset ratio at 37.2%. Note that if taking into account the expected impact of Manulife US REIT's portfolio valuation decline on its aggregate leverage ratio the average debt-to-asset ratio for the 40 trusts at the end of 2022 increases to 37.2%.
Looking at comparative performances and fund flows within the S-REIT sector since the end of 2021, debt-to-asset ratios of S-REITs have anecdotally held some level of investor influence.
- The 15 trusts with debt-to-asset ratios at 36.5% or below averaged 9.8% declines in 2022 while booking S$215 million of net fund outflows. The first 13 sessions of 2023 saw the same 15 trusts average 2.2% gains while booking S$10 million of net fund inflows.
- The 21 trusts with debt-to-asset ratios at 37.5% or above averaged 22.1% declines in 2022 while booking S$767 million of net fund outflows. The first 13 sessions of 2023 saw the same 21 trusts average 1.7% gains while booking S$25 million of net fund outflows.
Note the fund outflows and inflows of the 21 trusts with about average debt-to-asset-ratios is expected to be higher given their comparatively higher market capitalisation.
| Debt-To-Asset Ratios as of 31 Dec 2022 |
No. of REITs/ Property Trusts |
2022 Average Total Return % |
2022 Net Institutional Fund Flows S$M |
Market Cap as of 31 Dec S$B |
2023-To-Date Average Total Return % |
2023-To-Date Net Institutional Fund Flows S$M |
|---|---|---|---|---|---|---|
| D/A ≤ 36.5% | 15 | -9.8 | -232 | 24.3 | 2.1 | 10 |
| 36.5% > D/A < 37.5% | 4 | -11.2 | -283 | 20.7 | 1.7 | -41 |
| D/A ≥ 37.5% | 21 | -22.1 | -767 | 53.1 | 1.7 | -25 |
Source: Bloomberg, SGX.
Data as of 19 Jan 2023.
Note the three segments above are based on debt-to-asset ratios available at 31 Dec.
Sector Drivers and Challenges
Throughout 2022 the global stock market was determinedly forward-looking, with global supply chain and subsequent growth concerns weighing global technology stocks, while energy costs, rising interest rates, currency volatility and subsequent growth concerns weighed global REITs. These two sectors ranked the least performing global stock sectors for much of the 2022 year.
The dampening of economic expectations saw the FTSE ST REIT Index Price-to-Book (P/B) ratio decline to 0.84x, or a 16% discount to book value in October 2022. China’s ensuing economically supportive policies and the marginally less hawkish US rate outlook have seen the FTSE ST REIT Index discount to book value narrow to 5%. This is still significantly shy of the Index’s 18% premium seen in January 2021.
With the S-REIT Sector maintaining a significant bandwidth of sub-segments, from retail to commercial to industrial, secular, and sub-industry trends continue to impact occupancy levels and rental reversions.
For instance, the hospitality stapled trusts benefited from the rise in international tourist travels last year, and this was the sub-segment that saw the strongest performance (see here for more). The four hospitality trusts with Singapore assets recorded significant improvements in occupancy with RevPAR benefiting from pent-up demand for travel, and averaged 6.8% total returns in 2022, adding 3.8% for the first 13 sessions of 2023. The 2022 gains were despite the curtailed travel to and from China, with China contributing one in five tourists to Singapore prior to 2020.
While there is a general expectation of global inflation gradually receding and global growth gradually rising into 2024, there is a large slate of data to be released in the interim. Key downside risks include global interest rate increases further decelerating growth or exacerbating market volatility and financial stability risks and further escalation in global geopolitical tensions.
While maintaining Suntec REIT had increased its fixed interest rate borrowings and foreign currency income hedge, the CEO of the Manager of Suntec REIT noted this morning “the expected continued rising interest rates, weaker exchange rates, and higher energy costs are expected to erode operational gains and impact our distribution significantly in the near term” adding “we are also actively looking at the potential divestment of our mature assets to strengthen our balance sheet”. Benefitting from the overarching regional re-opening theme, Suntec REIT’s FY22 (ended 31 Dec) distributable income increased 3.4% from FY21.
Acquisition Drives
The regional re-openings have also supported Retail REITs which recorded marked recovery in shopper traffic footprint, stronger leasing activity and tenant sales with some even exceeding pre-COVID levels (see here for more). The recent bustle has even attracted Asia’s largest REIT, Link REIT to Singapore, through the acquisition of Jurong Point and Swing By @ Thomson Plaza for SS$2.16 billion (appraised value of S$2.30 billion). Just as the acquisition aligns with Link REIT’s growth strategy to diversify and improve its portfolio mix across geographies, the ongoing of process of bring privately owned real estate assets into REITs, enables investors to further diversify their portfolios. The acquisition also parallels the trusts of the S-REIT Sector expanding their portfolios to include international assets.
Recent years have also seen around half of the trust of the S-REIT Sector make acquisitions in efforts to further enhance unitholder value, with the trend continuing into 2023 (see here for more). Yesterday for instance, Mapletree Logistics Trust reported its gross revenue for 3Q FY22/23 rose by 8.0% y-o-y to S$180.2 million, mainly due to accretive acquisitions completed in 1Q FY22/23 and FY21/22. In tandem with higher gross revenue, net property income increased by 7.3% y-o-y to S$157.2 million.
The 40 trusts of the S-REIT Sector currently listed for trading, and sort by highest average traded turnover in 2022 are tabled below.
| S-REITs & Property Trusts | SGX Code |
Type of Property Sub-Segment |
2023-To-Date Total Return % |
2023-To-Date Net Fund Flows S$M |
Market Cap as of 31-Dec S$M |
Dividend Yield as of 31-Dec % |
2022 Average Daily Turnover S$M |
2022 Total Return % |
2022 Net Fund Flows S$M |
Debt/Asset as of 31-Dec % |
P/B as of 31-Dec (x) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| CAPITALAND INTEGRATED COMMERCIAL TRUST | C38U | Diversified | 1.5 | -9 | 13,536 | 5.1 | 47.5 | 2.6 | 87 | 41.2 | 1.0 |
| CAPITALAND ASCENDAS REIT | A17U | Industrial | 1.8 | -19 | 11,519 | 5.7 | 31.8 | -2.0 | -139 | 37.3 | 1.1 |
| MAPLETREE PAN ASIA COMMERCIAL TRUST | N2IU | Diversified | 7.2 | 18 | 8,744 | 6.0 | 26.4 | -11.7 | -170 | 40.1 | 0.9 |
| MAPLETREE LOGISTICS TRUST | M44U | Industrial | 1.3 | -22 | 7,647 | 5.6 | 24.5 | -12.5 | -104 | 37.0 | 1.1 |
| SUNTEC REIT | T82U | Diversified | -0.7 | -17 | 3,969 | 6.6 | 17.7 | -3.1 | -12 | 43.1 | 0.6 |
| MAPLETREE INDUSTRIAL TRUST | ME8U | Industrial | 3.6 | 3 | 6,045 | 6.2 | 16.0 | -13.4 | -198 | 37.8 | 1.1 |
| FRASERS LOGISTICS & COMMERCIAL TRUST | BUOU | Diversified | 4.3 | 5 | 4,305 | 6.6 | 13.0 | -19.0 | -49 | 27.4 | 0.9 |
| KEPPEL DC REIT | AJBU | Specialized | 6.8 | 8 | 3,042 | 5.7 | 11.0 | -25.3 | -155 | 37.5 | 1.3 |
| KEPPEL REIT | K71U | Office | 0.0 | -10 | 3,405 | 6.6 | 10.3 | -15.1 | -66 | 38.4 | 0.7 |
| FRASERS CENTREPOINT TRUST | J69U | Retail | 1.9 | -2 | 3,578 | 5.8 | 7.2 | -4.0 | -42 | 33.0 | 0.9 |
| CAPITALAND ASCOTT TRUST^# | HMN | Hospitality | 2.9 | 6 | 3,618 | 4.4 | 7.2 | 6.7 | 23 | 35.8 | 0.9 |
| LENDLEASE GLOBAL COMMERCIAL REIT | JYEU | Diversified | -1.4 | -16 | 1,612 | 6.8 | 6.0 | -13.9 | -17 | 39.4 | 0.8 |
| CAPITALAND CHINA TRUST | AU8U | Diversified | 4.5 | 3 | 1,875 | 7.7 | 4.9 | -1.1 | -65 | 39.3 | 0.7 |
| DIGITAL CORE REIT | DCRU | Specialized | -0.3 | -1 | 826 | 4.3 | 4.5 | -51.6 | -16 | 26.2 | 0.7 |
| ESR-LOGOS REIT | J91U | Industrial | -1.4 | 0 | 2,486 | 7.8 | 4.0 | -18.8 | -20 | 40.2 | 1.0 |
| CAPITALAND INDIA TRUST^ | CY6U | Diversified | 3.5 | 1 | 1,312 | 7.0 | 3.1 | -15.1 | -42 | 37.0 | 0.9 |
| CDL HOSPITALITY TRUSTS^# | J85 | Hospitality | 4.0 | 4 | 1,546 | 4.1 | 2.7 | 11.3 | 9 | 39.4 | 1.0 |
| PARKWAYLIFE REIT | C2PU | Health Care | -0.3 | -3 | 2,275 | 3.8 | 2.6 | -25.1 | -29 | 34.7 | 1.6 |
| PARAGON REIT | SK6U | Retail | 4.4 | 4 | 2,532 | 6.1 | 2.2 | -4.5 | -7 | 30.0 | 0.8 |
| MANULIFE US REIT | BTOU | Office | -6.1 | -2 | 714 | 17.5 | 2.0 | -53.2 | -32 | 42.5 | 0.4 |
| FRASERS HOSPITALITY TRUST^# | ACV | Hospitality | 3.4 | -1 | 857 | 3.6 | 1.8 | -1.2 | 3 | 36.4 | 0.7 |
| AIMS APAC REIT | O5RU | Industrial | 4.0 | 0 | 890 | 7.6 | 1.7 | -8.3 | -30 | 36.5 | 0.9 |
| SASSEUR REIT | CRPU | Retail | 4.6 | 0 | 929 | 9.4 | 1.4 | -2.2 | -40 | 26.4 | 0.8 |
| PRIME US REIT | OXMU | Office | 11.0 | -4 | 642 | 17.2 | 1.1 | -47.1 | -30 | 38.7 | 0.5 |
| STARHILL GLOBAL REIT | P40U | Retail | 2.8 | 1 | 1,214 | 7.0 | 1.1 | -12.2 | -12 | 36.5 | 0.7 |
| FAR EAST HOSPITALITY TRUST^# | Q5T | Hospitality | 4.8 | 1 | 1,233 | 5.0 | 1.1 | 10.4 | 2 | 33.5 | 0.7 |
| KEPPEL PACIFIC OAK US REIT | CMOU | Office | 5.3 | -2 | 643 | 13.5 | 0.9 | -38.3 | -25 | 37.5 | 0.6 |
| CROMWELL EUROPEAN REIT | CWBU | Diversified | -1.5 | -2 | 1,210 | 11.5 | 0.9 | -40.2 | -14 | 38.9 | 0.6 |
| OUE COMMERCIAL REIT | TS0U | Diversified | 3.0 | 0 | 1,831 | 7.2 | 0.7 | -19.2 | -16 | 40.3 | 0.6 |
| DAIWA HOUSE LOGISTICS TRUST | DHLU | Industrial | 0.0 | 0 | 440 | 4.8 | 0.7 | -17.3 | -23 | 35.4 | 0.8 |
| FIRST REIT | AW9U | Health Care | 0.0 | 0 | 535 | 10.2 | 0.4 | -6.4 | -12 | 35.6 | 0.8 |
| ELITE COMMERCIAL REIT | MXNU | Office | 6.4 | 0 | 366 | 10.9 | 0.3 | -31.6 | -9 | 41.9 | 0.8 |
| UNITED HAMPSHIRE US REIT | ODBU | Retail | -2.2 | 0 | 352 | 12.8 | 0.3 | -25.6 | -18 | 42.1 | 0.6 |
| EC WORLD REIT | BWCU | Industrial | -2.2 | 0 | 360 | 12.6 | 0.3 | -36.1 | -7 | 39.3 | 0.6 |
| SABANA INDUSTRIAL REIT | M1GU | Industrial | -3.4 | 0 | 477 | 7.4 | 0.3 | 4.9 | 13 | 33.7 | 0.8 |
| IREIT GLOBAL | UD1U | Office | 3.0 | 0 | 584 | 8.5 | 0.3 | -16.9 | -13 | 30.6 | 0.6 |
| LIPPO MALLS INDONESIA RETAIL TRUST | D5IU | Retail | 6.7 | 0 | 231 | 12.0 | 0.2 | -39.6 | -8 | 43.7 | 0.3 |
| DASIN RETAIL TRUST^ | CEDU | Retail | -14.0 | 0 | 229 | 7.7 | 0.2 | -17.5 | -2 | 40.4 | 0.2 |
| ARA US HOSPITALITY TRUST^# | XZL | Hospitality | 4.5 | 0 | 267 | 3.8 | 0.1 | -27.8 | 0 | 39.3 | 0.5 |
| BHG RETAIL REIT | BMGU | Retail | 0.0 | 0 | 259 | 3.6 | 0.1 | -15.2 | 1 | 36.6 | 0.6 |
| Total | -55 | 98,135 | 258.3 | -1,282 |
# Denotes Stapled Trusts.
^ Denotes Property Trusts.
Source: Bloomberg, SGX.
Data as of 19 Jan 2023.
