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Business Times
25-05-2025
- Business
- Business Times
Interest costs fall for S-Reits in Q1, but US tariffs cloud outlook
[SINGAPORE] Interest costs eased for more Singapore-listed real estate investment trusts (S-Reits) in the first quarter of FY2025, even as looming US tariffs cast a shadow over their prospects for the second half of the year. Nearly three-quarters of S-Reits saw flat to moderate interest cost declines in Q1 compared to a year ago, said Vijay Natarajan, an analyst with RHB Bank, following the release of S-Reits' Q1 results and business updates. Singapore-focused S-Reits had the largest drop in interest costs, with Far East Hospitality Trust (FEHT) , OUE Reit and Sasseur Reit among those that had the largest quarter-on-quarter declines. While most S-Reits have been unaffected by the global tariffs imposed by the US administration so far, there are indications that they could have an indirect impact on S-Reits in the second half of this year, said analysts. 'Tenants are cautious to sign long leases, and investment and divestment activity have slowed as buyers and sellers are revisiting underwriting assumptions,' said Krishna Guha, analyst at Maybank Securities. Q1 performance Most Reits and property trusts did not disclose distribution details in their quarterly updates. A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up Nevertheless, of the 13 trusts that provided distribution per unit (DPU) figures for Q1 in their latest results or business updates, six reported year-on-year declines, data compiled by The Business Times showed. There was an almost even split across the 27 S-Reits that reported revenue growth, with 14 of them posting higher growth. Across the 31 trusts that reported their net property income (NPI), 17 registered a decline. Analysts said that the latest results reported by S-Reits were broadly in line with their expectations. The majority of S-Reits under RHB's coverage reported in-line results with operational numbers remaining 'strong', said Natarajan. 'More than half of the S-Reits that reported financials... saw positive quarter-on-quarter and year-on-year net property income growth, supported by stable occupancy and positive rent reversions,' he said. Likewise, OCBC's research team said in a note on May 15 that the overall DPU for the 10 counters under its coverage fell 2.8 per cent year-on-year. In terms of valuation, the current price-to-book ratio is still 'undemanding' at 0.82 times as it is still below the eight-year average of 0.98 times. Hospitality sector hit Analysts said the hospitality sub-sector was among the worst performers in Q1, as revenue per available room (RevPar) declined year on year due to fewer major concerts. 'This hurt hospitality S-Reits with significant geographical concentration locally,' noted OCBC. FEHT's RevPar fell 6 per cent, while CDL Hospitality Trust saw a 15.8 per cent drop compared to a year ago. On the other hand, the retail sub-sector turned in a 'resilient' performance. Darren Chan, a senior research analyst at Phillip Securities Research, said that S-Reits with suburban retail assets, which saw rental reversions in the high single digits, were supported by consumers' focus on essential spending. However, retail assets more exposed to the hospitality sector, such as those in Starhill Global Reit and Suntec Reit's portfolios, had lower shopper traffic and tenant sales year on year. This was due to the absence of high-profile events and more cautious consumer sentiment ahead of potential US tariffs. Going forward Given the uncertainties posed by the US tariffs, Maybank's Guha expects the operating trend for Q2 to be similar to Q1. Sharing his view, OCBC said that in view of uncertainty over tariffs, it is important for investors to take into consideration the quality of the asset portfolio, geographical location of assets, track record and balance sheet strength of S-Reits. However, analysts remained optimistic of the longer-term performance of S-Reits in view of falling interest rates. Chan expects S-Reits to register a year-on-year growth in their DPU in FY2026. Similarly, OCBC forecasts a recovery in DPU by 4.4 per cent on average in FY2027, assuming there is no global recession. Among S-Reits, Natarajan thinks large-cap, high-quality Singapore-centric Reits could do well. He favours industrial, office, healthcare and suburban retail sub-sectors, while hospitality is the least preferred. OCBC prefers S-Reits that can exhibit DPU growth and are backed by strong sponsors. Its top picks are CapitaLand Ascendas Reit , CapitaLand Integrated Commercial Trust , Keppel DC Reit and Parkway Life Reit .
Business Times
06-05-2025
- Business
- Business Times
MPACT should sell Festival Walk or merge to get more Singapore-centric
SINGAPORE'S largest mall, VivoCity, with over a million square feet of lettable area, is much loved by shoppers. However, the mall's owner – Mapletree Pan Asia Commercial Trust (MPACT) – receives little affection from investors. In terms of trading price relative to book value, MPACT is performing the worst among the seven real estate investment trusts (Reits) that are members of the benchmark Straits Times Index (STI). As at May 6, MPACT, which owns properties owned primarily for office and/or retail purposes, traded at a 32 per cent discount to its end-March 2025 net asset value (NAV) per unit of S$1.78. In contrast, peers on the STI which own mainly office and/or retail properties – CapitaLand Integrated Commercial Trust (CICT) and Frasers Centrepoint Trust (FCT) – trade at around their latest reported NAV per unit. Both have much more Singapore-centric property portfolios than MPACT does. Perhaps, unitholders of Singapore-focused Mapletree Commercial Trust are ruing the aforesaid merging with Mapletree North Asia Commercial Trust, which owned properties in Hong Kong, China, Japan and South Korea, to form MPACT in 2022. Is MPACT's poor market valuation largely due to its ownership of Festival Walk in Hong Kong's Kowloon Tong? Maybe, the trust should aim to get better valuation from investors by turning much more Singapore-centric. A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up Festival Walk was valued at HK$23.8 billion, or around S$4.1 billion at end-March. The shopping and entertainment strip and VivoCity accounted for about 25.6 per cent and 24.2 per cent of MPACT's end-March property portfolio valuation, respectively. At end-Mar, VivoCity's valuation was up 14.8 per cent, but Festival Walk's fell 5.2 per cent in local currency terms from its level the year before. VivoCity, located in Singapore's HarbourFront area, is way more productive than Festival Walk – the former's net property income (NPI) for the financial year ended Mar 31 (FY2025) of S$176.6 million was 18.7 per cent higher than the latter's NPI of S$148.8 million. Amid a challenging environment for Hong Kong's retail landlords, tenant sales at Festival Walk fell 8.4 per cent year on year in FY2025. Rental reversion at Festival Walk was down 6.9 per cent, while VivoCity's climbed 16.8 per cent. Selling Festival Walk By selling Festival Walk, MPACT becomes much more Singapore-centric, which might help its unit price re-rate upwards. At end-March, Singapore assets accounted for 56.5 per cent of MPACT's property portfolio valuation of nearly S$16 billion, with the properties in Hong Kong, China, Japan and South Korea contributing the remainder. Excluding Festival Walk, the Singapore assets contribute about 75.9 per cent to the trust's end-March property valuation. Besides VivoCity, MPACT's other assets here are Mapletree Business City and mTower in the Alexandra area, and Bank of America HarbourFront in the HarbourFront area. However, can Festival Walk transact at or above its latest valuation? If needed, MPACT's sponsor Temasek-owned Mapletree Investments could buy Festival Walk at valuation. While acquiring Festival Walk may not be at the top of its agenda, Mapletree can show it is a strong sponsor who adds value to MPACT's unitholders by taking Festival Walk off the trust's hands. Showing that it is a strong sponsor will enhance Mapletree's credibility in property fund management. The Temasek-owned group is active in managing Singapore-listed Reits and private equity real estate funds that own assets across diverse geographies and property asset types. Moreover, as Mapletree is a major unitholder of MPACT, it gains from any improvement in the trust's trading price. Divesting Festival Walk not only makes MPACT more Singapore-centric, but also raises cash to potentially make additional acquisitions in Singapore. MPACT could possibly buy The Woodleigh Mall, in which Cuscaden Peak has ownership interest. Mapletree jointly owns Cuscaden Peak, alongside Temasek's CLA Real Estate. Over time, MPACT might eye buying Paragon along Orchard Road, after a potential major asset enhancement initiative. Cuscaden Peak will fully own Paragon after privatising Paragon Reit . Pursuing a merger Alternatively, MPACT could add scale and Singapore-centricity by merging with another trust. An MPACT- Suntec Reit merger can make sense. Suntec Reit owns properties that are used mainly for office and/or retail purposes in Singapore, Australia and UK, with a total valuation of S$11.8 billion at end-2024. The Singapore assets contributed about 78 per cent of the said valuation. As Suntec Reit trades at a larger discount to NAV than MPACT, Suntec Reit's unitholders may be happy to exchange units in it for units in a merged MPACT-Suntec Reit. Another possibility is for MPACT to merge with CICT, which owns about S$26 billion of properties as at end-2024 and has Singapore assets accounting for nearly 95 per cent of property valuation. A potential CICT-MPACT merger would enable MPACT's unitholders to hold units in a larger entity that is more Singapore-centric and likely to trade at a far superior multiple to book value than MPACT. Can Mapletree, which owns MPACT's manager, stomach possibly losing lucrative recurrent fund management income as part of this merger? Reits have been a major success story on the local bourse. For them to continue to win the confidence of investors, sponsors and managers, they need to pro-actively create unitholder value. MPACT has scale and a crown jewel in VivoCity. The mall's performance might improve further when ongoing major asset enhancements works are completed, possibly by end-2025. However, managing VivoCity well is not enough. MPACT's manager must urgently address the trust's poor equities market valuation. MPACT's manager should consider selling Festival Walk and/or a merger to help improve MPACT's unit price, thereby benefiting all unitholders. The writer owns units in MPACT
Business Times
27-04-2025
- Business
- Business Times
CapitaLand Investment's launch of new C-Reit comes as it takes long-term view of China business
[SINGAPORE] CapitaLand Investment (CLI) holds a long-term view of its business in China where it has built a strong foundation as part of the CapitaLand Group for over 30 years, said CLI's group chief executive officer Lee Chee Koon. Earlier this month, CLI announced it will launch its first real estate investment trust (Reit) in China with two major malls valued at 2.8 billion yuan (S$499 million). On CapitaLand Commercial C-Reit's proposed listing, Lee said: 'CLI wants to continue to tap into China's big domestic capital market to further grow its funds management business. Domestic investors are seeking opportunities to deploy their capital due to restrictions that limit the movement of yuan out from China. 'Leveraging CLI's local teams with strong investment and operating capabilities, it is able to source off-market deals, and work with its capital partners to structure deals to allow them to invest in quality assets that are well managed.' Amid the current challenging market, the group continues to strengthen its asset management team to drive occupancy and rental growth. 'Whatever that we do, we want to make sure that we are better than the market,' Lee added. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up CapitaLand was listed in 2000 through a merger between Pidemco Land and DBS Land. Lee said: 'It started off as a very Singapore-focused developer at that point in time. There was a big push to go beyond the region. We rode the China wave and built up a nice development business.' He said that when he took over as president and group CEO of CapitaLand Group in 2018, the board and the management did a review of the business. 'CapitaLand Group's business model had worked very well and built up a good foundation. However, when we looked at places like China, it was challenging for us to be competitive against the local developers because of (their) ability to secure land, build fast, manage the project at the lowest cost, and sell higher,' he said. 'During the CapitaLand Group days, the development process took a longer time; and being a listed entity, CapitaLand Group had traded at a big discount to book value.' This was because institutional investors generally do not like the lumpiness of the revenue and profits of development properties, Lee noted. 'So we made a decision… to say that long-term... we should... focus to become an asset management business.' In 2021, CapitaLand Group was restructured into real asset manager CapitaLand Investment and CapitaLand Development, the group's privatised development arm. Asked if there are plans to grow its management of third-party assets, Lee said the group would do so in a way that makes strategic sense. 'In China, location is important. We do not... want to manage assets in cities where we do not already have a presence because scale is important and synergies are important. We want to make sure that it's additive to the system so that we can help to strengthen the leasing network and improve the returns for our investors at the end of the day,' he said. Data centres in India Beyond China, another key market for the group is India, especially in data centres and business parks. CLI is the most diversified real asset player in India with presence across all the top cities, Lee said. The group has built a diversified portfolio comprising more than 40 IT and business parks, industrial, logistics, lodging and data centre assets across eight cities in India – Bangalore, Chennai, Goa, Gurgaon, Hyderabad, Kolkata, Mumbai and Pune. Obtaining land with a clean title can be difficult in India but the group's 30 years of experience in India has enabled it to do so better than its peers, Lee said. Lee said: 'If you're a data centre operator without understanding of getting access to land, this becomes challenging... Being able to get land, being able to bring in power and being able to (add) on our data centre expertise – that's something we want to be able to do in India.' CLI's lodging unit, The Ascott, also announced this month it aims to double its portfolio in India to 12,000 units by 2028, up from about 5,500 units at the end of 2024. The self-storage sector is an asset class in which CLI sees strong potential, with rising urbanisation and smaller living spaces. Lee explained: 'Self-storage is a stable income-generating business as demand tends to be sticky. For example, customers typically store items such as their wine collections over a long period of time. Also, in countries where there are four seasons, customers will also typically store their winter wear and ski equipment after winter, and their summer wear after summer.' He noted: 'While it takes a bit longer to build up occupancy, depending on the location and how aggressive the marketing team is; but once the cashflows are there, it's very low maintenance. It's a great asset class... not just in Asia. We hope to do this in a more global manner.' The group, which announced last December it will acquire private credit investment manager Wingate Group Holdings, is looking to build up a broader Asia-Pacific private credit business. Many of the banks in Australia and South Korea are reducing their exposure to real estate financing because of regulatory reasons, Lee said. The group will assess more opportunities for South Korea and Australia, and some interesting opportunities may come up in Hong Kong and potentially Singapore. When asked if there were plans for any new acquisitions in Singapore, Lee said if there are good opportunities allowing CLI to extend its coverage, it will continue to pursue them. 'We aim to build a company with truly global reach and capabilities. As a home-grown company from Singapore, it's a great joy to have built a strong international track record and reputation – enabling us to raise capital from sovereign wealth funds, pension funds, family offices and corporates across the world to co-invest with us in opportunities based on the quality returns we have consistently delivered,' said Lee. 'A significant part of this success also stems from the trust that investors place in Singapore and a Singapore-incorporated company.'
Yahoo
14-03-2025
- Business
- Yahoo
As recession fears rise and risk-free rates drop, S-REITs could benefit, JP Morgan says
As recession risks rise to 40%, Fed could have at least 2 rate cuts, benefitting S-REITs borrowing costs while widening yield spreads could trigger a REIT rally. Although S-REITs are an unlikely place to "hide" during a recession, JP Morgan reckons that a faster than expected 31% drop in 6-month Singapore benchmark rates and lower 1-month Sora down 100 basis points (bps) to 2.4% may see investors rotating to defensive yield plays. Against this background, JP Morgan is expecting a 15% upside to the S-REITs' September 2024 highs. "There is further potential for lower rates, as JPM and the Street are expecting two/three Fed rate cuts by end-2025, with our economists highlighting a 40% risk of a US recession this year. We estimate a 4% upside to S-REITs' DPU for every 100 bps fall in floating rates, and anticipate that S-REITs will revise down borrowing cost guidance. Yield spreads of 340 bps, the highest level since March 2022 which triggered a rally then, is also supportive," JP Morgan says. Its top picks are Singapore-focused names including CapitaLand Integrated Commercial Trust C38u, CapitaLand Ascendas REIT A17u, Keppel DC REIT, Frasers Centrepoint Trust J69u and laggards such as Mapletree Logistics Trust M44u. S-REIT borrowing costs should trend down with two-thirds of S-REITs at or above stabilised borrowing costs, JP Morgan reckons. In particular, lower floating rates should benefit S-REITs with a high proportion of floating rate debt, such CDL Hospitality Trusts J85, and those with a larger share of SGD-denominated debt, such as Frasers Centrepoint Trust where borrowing costs could trend lower than the manager's guidance. Additionally, coupons for S-REIT bonds have fallen to a three-year low of 3.2% from reduced spreads and a drop in 3-year swap rates. S-REITs are relatively more attractive with yields at 6.3% compared to bank yields at 6.2%, according to JP Morgan. To this, the caveat has to be added that banks pay out 50% to 60% of their earnings compared to S-REITs minimum payout of 90% of distributable income. But, alternatives, including Singapore's 6-month T-bill rates have fallen to 2.75%, and the 10-year bond yield is at 2.7% as of March 10. A widening yield spread could also trigger an S-REIT temporary, no matter how temporary. See Also: Click here to stay updated with the Latest Business & Investment News in Singapore What to do as US rates stay higher for longer and Chinese rates hit rock bottom Singapore credits to stay resilient in 2025; investors prefer lower-risk REITs Changes in ICR, leverage to come into effect immediately, with additional disclosures in March Read more stories about where the money flows, and analysis of the biggest market stories from Singapore and around the World Get in-depth insights from our expert contributors, and dive into financial and economic trends Follow the market issue situation with our daily updates Or want more Lifestyle and Passion stories? Click here
