The Singapore Real Estate Investment Trust (S-REIT) market in Singapore is well diversified and has been since its beginnings back in 1999. According to a January 01, 2014 paper published by one of the University of Western Sydney students, Mr. Alex Ann Khoi Pham, entitled “The Development of REIT Markets in Asia”, the S-REIT sector was started in 1999 when the first set of regulatory guidelines were introduced by the Monetary Authority of Singapore (MAS). The Securities and Future Act (SFA) and the Code on Collective Investment Schemes (CCIS) currently cover the regulatory guidelines for S-REITs. S-REITs may or may not be listed on the Singapore Exchange (SGX).
According to a January 29, 2014 market update note published by the Singapore Exchange (SGX), there are currently a total of 26 Real Estate Investment Trusts being publicly listed. The benefits of investing in S-REITs are the diversified nature of real estate properties each trust holds depending on the setup of the REIT, i.e. Residential, Commercial, Office, or Industrial; It offers liquidity as opposed to investing in real estate properties; and most of the publicly-listed S-REITs are heavily regulated. However, there are risks including the solvency and reputation of the trust managers who are managing the assets of the S-REIT, the highly leveraged nature of some S-REITs where the volatility of interest rates could determine the sustainability and viability of a S-REIT, and the condition of the assets that the S-REITs are currently managing. These benefits and risks must be taken into account when trying to determine whether an investor is able to tolerate such risks, and if S-REITs are suitable investment vehicles to be included in one’s investment portfolio, after considering the stage of his/her investment life cycles, transaction fees, and investment objectives.
The year-to-date performance of most S-REITs in Singapore has generally been mixed after the introduction of various property cooling measures, including the Total Debt Servicing Ratio (TDSR) where eligibility and down payment requirements have been tightened to include personal loans, car loans, and credit card loans, among others. The other piece of measure is the Additional Buyer Stamp Duty (ABSD) where stamp duty payments have increased which essentially results in a financial cost burden for property speculators intending to profit from real estate transactions. The residential private property S-REITs including the likes of Frasers Centrepoint Trust (FCT) which has residential properties among its commercial and shopping centre assets have also been impacted by the recent property cooling measures, but the Industrials, Office & Diversified S-REITs sectors have generally weathered the storm as a result of the shortage in supply, especially with the Office sector where there has been an increasing demand coming from foreign multinationals intending to set up their regional headquarters and are looking for office space in the city state to operate.
The year-to-date equity performances of some of the largest, well-capitalised Industrials, Office & Diversified REITs are as follows:
|Short Name||SGX Code||Mkt Cap S$M||Dvd 12M Yld – Gross %||DPS Last Gross||Dvd Ind Yld %||Px Chg Pct YTD %||Total Return YTD %||Debt/AssetsLF||ICB SubsectorName|
|ASCENDAS REAL ES||A17U||5165||5.2||0.0354||6.7||-3.6||-2.0||29.6||Industrial &Office REITs|
|CAPITACOMMERCIAL||C61U||4189||5.5||0.0413||5.6||1.0||1.0||25.0||Industrial &Office REITs|
|SUNTEC REIT||T82U||3613||5.7||0.0256||6.4||3.6||3.6||38.0||Industrial &Office REITs|
Source: Singapore Exchange (SGX)
According to the table extracted from the January 29, 2014 SGX market update newsletter, the three publicly-listed S-REITs take up much of the Industrial, Office and Diversified S-REITs sector in Singapore, with distribution per unit (DPU) yield averaging approximately 6.0 percent, and are holding a diversified portfolio of industrial and office investments.
As readers might have noticed that Ascendas Real Estate, which has properties ranging from business space and industrial properties located in business and science parks, hi-tech industrial spaces, light industrial spaces, logistics and distribution centres, have a DPU yield of close to 6.7 percent. As of 2013, Ascendas REIT has market capitalisation of SGD 5.2 billion.
The rest of the two, including Suntec REIT, owner of the Suntec City in the Marina district in downtown Singapore, and Park Mall, is one of the largest office and retail property landlords. It’s total market capitalisation is approximately SGD 3.6 billion, and average DPU yield is 6.4 perccent.
In general, this article is meant to provide a brief overview of the S-REIT market, and an introduction of some of the publicly-listed Industrial, Office and Diversified S-REIT companies. Investors, and potential investors should be mindful about the debt leverage ratios most of the S-REITs, are carrying on their books, particularly in the Industrial and Office space, where according to the January 29 Market Update newsletter published by the Singapore Exchange, the ratio averaged approximately 33.6 percent on a debt-to-total asset basis. The debt-to-assets ratio is generally a reflection on the firm’s exposure to its capital requirements, and ability to manage the financial leverage. As the overall purpose for S-REITs to obtain the maximum returns with minimal risks, it pays for any investor out there interested in gaining some insights of the S-REIT markets to take a closer look on leverage, and solvency ratios so as to ensure that they understand the nature of the S-REIT and should be prepared for any interest rate volatilities along the way.