Poor returns show expanding S-Reit market isn’t giving joy to investors

IN THE beginning, the Singapore market had just a handful of real estate investment trusts (Reits). These were platforms with predominantly domestic assets. And for the early development of the local Reit sector, it was good.

In the next epoch, S-Reits went overseas to acquire some foreign assets. And it was still good.

Then came the wave of Reits with portfolios made up entirely of foreign assets landing in Singapore.

Soon, as Singapore made a name for itself as a regional Reits hub, some of the largest global sponsors started to list their assets here.

All but one of the 15 latest S-Reit listings in the past six years, since 2016, have involved Reits with mostly foreign assets.

As of end-August, the Singapore Exchange (SGX) boasted 42 actively traded S-Reits and property trusts, with a total market capitalisation of S$108 billion, representing close to 12 per cent of the Singapore stock market.

“The S-Reit and property trust sector has steadily grown and evolved from a market with predominantly local property Reits to a leading global Reit hub with diverse, international assets,” said SGX chief executive Loh Boon Chye at a Reit Association of Singapore (Reitas) event last month to mark the 20th anniversary of S-Reits.

“Singapore’s Reits industry is one of the fastest-growing in Asia, with 80 per cent of S-Reits and property trusts holding offshore assets across the Asia-Pacific, North America and Europe,” he added.

Indeed, the S-Reit market has grown exponentially in the past two decades.

For Singapore and for SGX, the number of foreign listings is a win and an indicator of the growing strength of the S-Reit brand.

For local investors, however, the largeness of the S-Reit market has added little to their pockets. The biggest Reits and strongest performers remain anchored in the local market.

Singapore-centred success

Four of the first Singapore-listed real estate investment trusts (S-Reits) – CapitaLand Integrated Commercial Trust (CICT), CapitaLand Ascendas Reit (Clar), Suntec Reit and Mapletree Logistics Trust (MLT) – still have significant proportions of their portfolios based in Singapore.

They also rank among the top in the Reits sector in terms of market capitalisation.

Since their IPOs, the quartet have seen their prices rise between 53 per cent and 213.3 per cent – or annualised total returns of between 9 per cent and 12.6 per cent.

Their fortunes have been more mixed in the past 12 months, as the world marched towards the end of the pandemic but ran into geopolitical risks as well as rising interest rates and inflation.

Suntec Reit, a beneficiary of the reopening theme, was the standout performer among the four. The counter gained 7.8 per cent in the past year, generating an annualised total return of 14.2 per cent.

CICT and Clar shed 6.3 per cent and 10.7 per cent, respectively, with annualised total returns coming in at -1.6 per cent and -5.8 per cent.

MLT, which has the largest proportion of exposure to overseas assets among the four, fell 23.7 per cent, with an annualised total return of -19.8 per cent.

MLT’s Singapore assets accounted for a fifth of its total assets under management (AUM) as at end June. The Singapore properties contributed to over a quarter of the Reit’s gross revenue for the first quarter ended Jun 30.

Meanwhile, seven of the 10 largest S-Reits by market cap have the majority of their assets based in Singapore. The remaining three have sizeable portions of their portfolios based here.

And out of the 42 active S-Reits, there are more than a handful that market observers would advise against betting on.

Especially in tough times, such as the current climate of volatility and uncertainty, analysts have pointed to the resilience of S-Reits. By this, however, they often mean the resilience of S-Reits with predominantly Singapore assets.

Overseas uncertainty

The unit prices of US-focused office Reits Manulife US Reit, Prime US Reit and Keppel Pacific Oak US Reit have slid by between 28.8 per cent and 42.6 per cent over the past 12 months, with annualised total returns at between -23 per cent and -37.5 per cent.

While the Singapore hospitality sector is riding on the wave of post-pandemic demand, Ara US Hospitality Trust has lost 13.3 per cent and turned in an annualised total return of -10 per cent.

Across the pond, the UK- and Europe-focused Reits Ireit Global, Elite Commercial Reit and Cromwell European Reit are also underperforming – with unit prices falling by between 21.9 per cent and 33.1 per cent over the past 12 months, and annualised total returns at between -16.4 per cent and -27.8 per cent.

China-focused Reits EC World Reit, Dasin Retail Trust, Sasseur Reit, BHG Retail Trust and CapitaLand China Trust are down between 10 per cent and 34 per cent in the same period, with annualised total returns at between -6.9 per cent and -27.7 per cent.

To be fair, some of these newer S-Reits with overseas assets have not had the long runway that the older, bigger Reits have had in establishing themselves in the minds of investors before being engulfed in the global turmoil of the past three years.

Appetite for foreign S-Reits may also have been shaken by the case of US-based hospitality stapled group Eagle Hospitality Trust, which was suspended less than a year into its listing, after one of its units defaulted on a loan.

Comparisons between these Reits and the Singapore giants could also be seen as slightly unfair.

But the disparity in performance is worth taking note of, as Singapore continues its hunt for overseas listings. And some attention may be necessary in looking into the reasons for this if the growth of the market is to continue and to benefit investors.