S-Reits could carry out more equity financing in 2018

SINGAPORE-LISTED real estate investment trusts (S-Reits) are likely to do more equity fund-raising exercises in 2018 to fund part of their acquisitions, given the profound run-up in their unit prices this year, which has consequently lowered the cost of capital.

The FTSE ST Reit Index has gone only one way - up - this year, rising about 20 per cent year-to-date on the back of stronger macro-economic conditions and better fundamentals in sub-sectors such as the office and hospitality markets.

A DBS Group Research report dated Dec 15, 2017 put the valuations of S-Reits at 1.1 times price-to-book, and a forward yield of 5.8 per cent, versus its forecast of 6.8 per cent the year before.

Although debt financing remains cheaper than raising equity in the current low interest-rate environment, some Reits may still go for the option of equity financing if their valuations stay elevated, and if they want to keep a buffer from the 45 per cent leverage limit imposed by …