After a dearth of S-Reit listings, it is now make or break for the market
For the new IPOs to have an impact, they will have to be of good quality
[SINGAPORE] The time is right for a shake-up in Singapore’s real estate investment trust, or S-Reit, market.
Interest rates have likely peaked, giving S-Reits stability and more certainty on their future performance.
The sector is also seeing a rebound as lower interest rates ease borrowing pressure on S-Reits. In the month to date ended Mar 20, the iEdge S-Reit Index recorded 4.8 per cent in price returns, outperforming the broader Strait Times Index’s 0.9 per cent.
At the same time, the Singapore bourse is primed to see new Reit listings this year, solidifying the exchange’s status as a Reit stronghold.
Coupled with new initiatives by the Monetary Authority of Singapore’s market review committee to boost the local bourse, Singapore’s S-Reit market appears primed for a rejuvenation.
However, how far Singapore’s Reit market will rejuvenate will ultimately depend on the quality of the new listings.
Inflection point
The Reit market is at an inflection point.
After a series of interest rate hikes by the US Federal Reserve over the last few years, interest rates have finally started coming down since last September.
While these cuts have been put on hold for now, indications suggest that the US Federal Reserve will pencil in two rate cuts for this year.
For S-Reits whose performance is dependent on interest rates, the outlook provides stability and certainty for them.
It is also a chance for the exchange to shed S-Reits that are not performing. In particular, private equity groups or sponsors may view this as a good time to take their Reits private.
Earlier this year, Times Properties, a wholly owned subsidiary of Cuscaden Peak Investments, proposed privatising Paragon Reit via a scheme of arrangement at S$0.98 per unit.
It cited low trading liquidity and the need to carry out major enhancement works as reasons for privatising the retail Reit.
Industry observers think that there is a chance for sponsors or private equity players to privatise smaller S-Reits which are trading at a discount. Such S-Reits would have been hit by higher debt and capital costs.
One such player is Europe-focused IReit Global , which is planning to redevelop its largest asset, Berlin Campus. The counter is trading at about a 50 per cent discount to book value and could attract a privatisation offer from its sponsor, RHB Research said previously.
Another S-Reit that industry observers think could go private soon is Frasers Hospitality Trust . Its sponsor, Frasers Property, failed in its attempt to take the trust private two years ago, but could be successful this year given current market conditions.
Other smaller Reits that may drop off the bourse includes the legally entangled Dasin Retail Trust , which most recently reported that one of its directors and substantial unitholders may have engaged in suspicious buy-back arrangements. The Chinese retail trust is also mired in debt, having been hard hit by the property downturn in China.
New Reits on the block
Even as some S-Reits are taken off the exchange, new ones are also expected to list this year.
Some of the names that have been bandied about include Japan’s Nippon Telegraph & Telephone Corp (NTT), which is said to be mulling the listing of a data centre Reit. French property asset manager Praemia REIM is also considering a potential listing of a healthcare Reit, according to media reports.
Meanwhile, Centurion Corporation announced in January this year that it is exploring the establishment of a Reit comprising some of its workers and student accommodation assets on the mainboard.
The potential listings have generated some excitement in the market, given that the previous year saw a dearth in new initial public offerings (IPOs). Last year saw only four new listings – all on the Catalist board – which raised a total of S$45.9 million.
It will also be the first Reit listing in Singapore since the debuts of Daiwa House Logistics Trust and Digital Core Reit in 2021.
But for the new Reit listings to truly make a mark on the bourse, they will have to be of good quality. To that end, the devil is in the details of the incoming listings.
Their size, asset class and the sponsor’s expertise will determine how much of an impact a Reit IPO will have in the market.
Industry watchers have pointed out that the value of a Reit listing would have to be at least S$1 billion for investors to take an interest. The type of asset, and more importantly, a sponsor’s expertise in managing that asset in the market it is located in, will ensure the success of the Reit.
While the sponsors of the potential new Reit listings are experts in their domains, it remains to be seen if the assets and size of the Reit that they list match their expertise, and consequently, is able to command the confidence of investors.
Should the new listings fall short on any count, they will do little to improve the quality of Singapore’s Reit market. This would be a lost opportunity for the Reit market, which has begun to rebound.
As one industry watcher puts it, churn in Singapore’s Reit market is the norm.
But with the time ripe for the Reit market to soar, it will take serious sponsors to put together high-quality Reit listings to move the churn beyond “business as usual” in today’s market.
