Singapore’s real-estate trusts fall out of favor
Singapore's market keeps churning out new REIT (real estate investment trust) listings, but with interest rates headed higher and the trusts' asset sizes getting smaller, is there much value to be had?
OUE Commercial Trust appears set to become the latest addition to the city-state's stable of listed real-estate trusts, filing its prospectus with the Singapore Exchange on Friday.
But like some of its more-recently listed peers, the trust won't have many assets – it's starting with just two office towers, one in Singapore and one in Shanghai.
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"The size is a bit of an issue. There are too many small REITs which are struggling to differentiate themselves," noted Tim Gibson, head of property equities for Asia at Henderson Global Investors.
At the IPO price of 80 Singapore cents a share, or around 63 U.S. cents each, the market capitalization will be less than 700 million Singapore dollars, compared with the total market cap of around 55 billion Singapore dollars for the Singapore REIT sector's around 30 listed trusts.
"This will be the smallest of the four office REITs" already listed in Singapore, noted Ong Kian Lin, an analyst at Maybank-Kim Eng.
Singapore's REITs, and in particular their juicy yields of sometimes more than 7 percent, had gained in popularity as interest rates fell, but with the U.S. Federal Reserve beginning to taper its asset purchases and global interest rates headed higher, that popularity is getting a bit thin.
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"It's a theme which has lasted for quite a period of time," Gibson noted. "People want yields as a starting point, but they also want growth," he said. "For Singapore, the growth is relative anemic. There's not a huge amount of upside."
Ong also noted that interest in REITs has been waning, with the segment's average daily volume falling from around $80 million (USD) to around $35 million to $40 million daily in December. "The interest is all gone," he said. He expects this will affect the performance of the new listing.
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While Ong noted the OUE Commercial Trust managed to land several cornerstone investors, there were no big institutional funds among their ranks, which were mostly made up of Chinese individuals.
Henderson's Gibson said he's giving the listing a pass. "We can get a higher return from other markets," he said.
The trust's growth prospects appear somewhat limited; while its sponsor has three more office assets it could offer to the REIT, rising interest rates may make the acquisitions unpalatable.
Ong noted one of last year's big REIT IPOs, Mapletree Greater China Commercial Trust, also started with just two assets and it hasn't added to its portfolio amid concerns about debt levels.
CIMB also highlighted REIT's growth issue in a strategy note late last year.
"S-REITs are finding it difficult to make yield-accretive acquisitions without stretching their gearing," it said.
"Asset values remain elevated amid competition for assets and inflation," CIMB said. "More REITs have highlighted the difficulty of choosing between expensive acquisitions and no growth."
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1