S-REITs and property trusts have grown by a CAGR of 10% since inception in the past 10 years. As it stands, future growth may sputter due to a lack of new listings. The SGX may have to rely on the listed S-REITs’ organic and acquisition growth for the market capitalisation growth of S-REITs.
Since the IPOs of Digital Core REIT and Daiwa Logistics Trust — both in 2021 — no new REIT IPOs have listed on the SGX. This is due to the interest rate hike cycle, as well as investor wariness of foreign sponsors.
To compensate for the current high interest rate environment, aspiring REIT IPOs may have to offer ever-higher distribution per unit (DPU) yields. In order to obtain high DPU yields, property yields have to be high. Sponsors would have to sell their properties into a new REIT at a relatively lower price than they may prefer. This may disincentivise sponsors from new REIT listings.
A second factor dissuading new sponsors is the potential failures of S-REITs with foreign assets and foreign sponsors. As Singapore is a global REIT hub, less-well-known sponsors have listed their S-REITs and property trusts on the SGX.
In 2021-2022, Eagle Hospitality Trust had to be liquidated and its directors are under an investigation. This year, Manulife US REIT is trading at cents to the dollar and investors are questioning its ability to survive and recapitalise. Dasin Retail Trust, a property trust with Chinese malls, is facing refinancing challenges, and EC World REIT, an S-REIT with Chinese logistics assets, is currently suspended as its ability to refinance its debt is being called into question.
It comes as no surprise that local investors are wary of foreign sponsors.
See also: First REIT’s strategic journey: balancing growth, stability and commitment to do good
