The managers of Singapore’s real estate investment trusts are bracing for headwinds amid volatile global markets, according to top executives from Manulife US REIT, Lendlease Global Commercial REIT, and JLL in a panel at the Mingtiandi Singapore Forum moderated by David Green-Morgan, head of real assets research for MSCI.
“I think comparatively speaking, the S-REITs have been holding up relatively well compared to our peers in the US,” said Tripp Gantt, chief executive officer at Manulife US REIT. “I think the FTSE S-REIT index is down by about 15 percent so far in the year to date, (and) we’re looking at maybe twice that in the US and Australia,” he added. “So all things considered, the S-REITs have been relatively resilient.”
Although the Singapore REIT industry is “relatively well-established,” there are rising concerns regarding funding costs, but also availability of quality assets, said Kelvin Chow, chief executive officer at Lendlease Global Commercial REIT.
“The issue is, the competitive landscape domestically is becoming more and more competitive, so there’s becoming fewer opportunities to grow organically within Singapore,” said Tim Graham, head of international capital for Asia Pacific at JLL.
Global REIT Hub
Given the growing competition domestically, and the ability to access capital through the Singapore exchange, REITs listed in the Lion City are playing a growing role on the global stage.
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- David Green-Morgan, head of real assets research at MSCI
“So if you look at the rate of growth of the S-REIT market by market cap, it’s grown 13 percent per annum for the last ten years. So we’re now in a position where the S-REIT market covers $100 billion (in assets under management),” said JLL’s Graham, noting that nearly half of that AUM is overseas.
As of 30 June, over 90 percent of S-REITs and property trusts – by both number and market capitalization – own properties outside Singapore across Asia Pacific, South Asia, Europe and USA, according to data from the REIT Association of Singapore. About 41 percent of S-REITs’ real estate portfolios consisted entirely of overseas properties.
In September this year, six S-REITs announced deals valued at approximately S$2.7 billion ($1.9 billion) in total, according to market updates on the Singapore Exchange. These included data centres and logistics, healthcare and retail properties – mostly located in Japan – as well as Germany, the US and Singapore.
Asset Pricing Challenges
Although deals continued to take place over the past month, Lendlease REIT’s Chow said that, for now, it is hard to acquire good assets, unless investors look at second or third-tier properties. Chow, who oversees a portfolio which has 88 percent of its assets by value in Singapore, said, “if it’s a good asset, it wouldn’t sell for cheap.”
With “wide swings in share prices” occurring on a day-to-day basis, Manulife US REIT’s chief executive pointed to growing challenges in raising cash. “I think it’s going to be really tough for S-REITs to raise new capital in the near term future,” said Gantt. “So I think a lot of us are going to be looking at opportunities to recycle capital.”
Noting that the US is at least six months ahead in terms of the market downturn, Gantt said, “our peers in the US are facing the exact same kind of issues that we are – and so I think right now, it’s a time to make sure we’re being conservative, making sure that we maintain and strengthen our balance sheet, and making sure that we can weather the storm. ”
“I think a lot of it is going to have to do with finding the assets you know you can win on over the long term, and making sure you’re very, very prudent in how you spend money, and making sure that the investments that you make (will pay off in the long term),” he said.
Singapore Stays Attractive
Despite slowing asset transaction volumes in the second half of this year, the panelists see Singapore as an attractive target both for asset acquisitions and for raising capital.
Citing an earlier panel at the Mingtiandi Singapore Forum, JLL’s Graham noted that global investors including Canada’s Ivanhoe Cambridge and Oxford Properties, are looking to increase their allocation to Singapore as the city’s real estate markets grow in value.
“I think (this) creates a huge opportunity for Singapore-based REITs because they are looking to capitalise on AUM growth – they’re looking to grow their assets under management all the time,” Graham said.
Lendlease REIT’s Chow sees Singapore’s governance standards and clear regulatory environment giving the city an edge as a financial hub.
“Except for Japan, I think we are one of the largest (REIT markets in Asia, because we have) good transparency,” said Lendlease REIT’s Chow. “Singapore is actually a good environment for investors to come into,” he added. “(It’s) well plugged into Europe, US and Asia,” making the Lion City a “good house for investment,” according to Chow.
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