Singapore REIT Sector
Improved Market Conditions
In 2010, the Singapore real estate investment trust (S-REITs) sector was supported by a strong rebound in the domestic economy, the stabilisation of rents across the retail, office and industrial property sub-sectors as well as lower refinancing risks of many S-REITs. The sector has seen a re-rating with unit prices rebounding during the year after a slew of recapitalisation exercises and major refinancing exercises in 2009. As at 31 December 2010, the FTSE ST REIT Index rose by 10.6% as compared to the beginning of the year.
The improved equity market conditions have encouraged more REIT listings, with four making their debut during the year and bringing the number of S-REITs to 25. As at end-2010, the total market capitalisation of S-REITs stood at S$37.2 billion, up by 26.0% in 2010 from S$29.6 billion in the previous year. The average dividend yield of S-REITs also compressed to 5.7% as at 31 December 2010 from 6.5% as at 31 December 2009. This was approximately 300 basis points above the Singapore government 10-year bond yield of 2.7% as at 31 December 2010.
In a comparison of annual total returns of Asian REITs, gains in the REIT markets ranged from 6.9% in Malaysia to 34.0% in Japan in 2010.
Given the substantial proportion of debt expiring in the next two years, many S-REITs have taken advantage of the conducive capital market conditions and low interest rate environment in 2010 to refinance their existing borrowings with debt with longer tenures. They have also diversified their sources of debt through the issue of medium-term notes and convertible bonds.
Approximately S$5.2 billion of capital has been raised through equity and debt markets in 2010.
With the strengthening of real estate fundamentals and refinancing concerns abating, many S-REITs were armed with further financial flexibility to re-enter the acquisition trail. They have acquired approximately S$5.7 billion worth of properties in Singapore and abroad in 2010. The majority or about 75% of the value of the assets acquired came from asset injections by sponsors.
Looking Forward
S-REITs are likely to stay in acquisition mode in 2011 if interest rates stay low and equity markets remain strong. Despite potential tax leakages and foreign exchange volatilities, more of them will be looking to acquire assets beyond Singapore, continuing the trend seen in 2010. An increase in acquisitions will trigger more fund-raising exercises as they will have to issue new units or take on debt to fund the acquisitions.
Listing activity in the S-REIT sector could also intensify in 2011 if equity markets remain firm. Some industry watchers expect at least five initial public offerings, with each of them potentially raising S$500 million to S$1 billion each.
CapitaMall Trust Report to UnitHolders 2010