While Singapore REITs (SG REITs) outperformed the Straits Times Index (STI) in 2Q2021, SG REITs continued to underperform the STI on a half year basis, note SAC Capital analysts Lam Wang Kwan and Tracy Lim.
Total return of the SG REITs sector was 2.3%, compared to the STI’s 0.4%. Total sector returns were 8.3% in 1H2021 as compared to STI’s 11.1%.
Over the course of 1H2021, SG REITs raised $2.3 billion in various equity fund-raising exercises and an additional $2.6 billion through debt issuance. Of which, Mapletree Industrial Trust raised the largest amount of approximately $1.2 billion, write Lam and Lim in a note on Aug 17.
Most of these fund-raising activities are related to asset acquisitions. SG REITs announced 20 acquisitions in 1H2021 valued at over $6.5 billion. “This could be partially explained by SG REITs taking advantage of the low interest rates environment and higher debt capacity as they look to diversify their geographical and earning exposure,” say Lam and Lim.
Singapore government bond yields have fallen slightly by 13 basis points (bps) to 1.46% while SG REITs average yield has fallen by 24bps since SAC Capital’s last update.
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SG REITs are currently trading at average annualised yields of 5.64%, 418 bps above SG Government bond yields of 1.46%. Meanwhile, real yields are at 5.01%.
The road to recovery continues to differ across the different REIT sectors, which is largely reflected by the rental conditions based on the latest announcements, write Lam and Lim.
In general, industrial REITs, particularly those with logistics assets, such as Mapletree Logistics Trust (+2.2%) and ARA Logos Logistics Trust (+2.4%), have seen a positive rental reversion.
Office assets are also faring better as countries gradually open up and more workers return back to office, say Lam and Lim. Manulife US REIT, Prime US REIT, Keppel Pacific Oak US REIT and Elite Commercial REIT have all reported positive rental reversions as the US and UK take the first steps to return to normalcy.
On the other hand, SG retail REITs continue to suffer as the country tightens its restriction measures sporadically.
Similarly, the hospitality REIT sector is affected by a lack of international tourists as revenue per available room (RevPAR) in 1H2021 continues to decline. However, ARA US Hospitality Trust has seen higher RevPAR as business travel resumes in the US. Overall, assets valuation has picked up as more REITS reported higher assets under management (AUM) as compared to the last reported figures.
“The pandemic continues to pose as a big threat to the REIT sector. However, as Singapore achieves its vaccination target and gradually reopens its city-state, we foresee that the resumption of business activities will greatly boost the overall REIT sector in the second half of the year,” say Lam and Lim.
“Potential border re-opening should also help to lift the hospitality sector, although this will likely to come at a later stage as new virus variants result in new waves of Covid-19 infections in different countries,” they add.
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As at 2.03pm, shares in the STI are trading 23.75 points higher, or 0.76% up, at 3,142.26.
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