25% Of S-REIT Acquisitions In 2021 Were Office Properties
SINGAPORE – RHB revealed that about one out of four property purchases by Singapore-listed real estate investment trusts (S-REITs) last year comprised office buildings, reported The Business Times on Monday morning (24 January, SGT).
RHB analyst Vijay Natarajan also disclosed that more than 50 percent of S-REITs announced asset acquisitions last year, with overall purchase consideration hitting at least S$12.7 billion.
“Moving into 2022, we expect the acquisition pace to slow down to S$8-10 billion (due to) an anticipated rise in interest rates and compressed capitalisation rates.”
“A key market concern has been the impact of impending interest rate hikes… (but) from a balance sheet standpoint, S-REITs are well poised to weather the rate hikes,” he said, adding that S-REITs have an average gearing ratio of 37 percent with almost 77 percent of debts hedged.
While the sector could initially face setbacks in the form of increasing interest rates, Jefferies analyst Krishna Guha thinks that S-REITs could re-rate with rising rents and occupancy, or a change in interest rate movement.
“Notwithstanding the initial underperformance, the S-REIT sector delivered 10 percent annual return during the last rate hike cycle from December 2015 to December 2018. We expect the S-Reit sector to deliver similar performance in the upcoming rate hike cycle as well.”
Moreover, Guha projects that commercial REITs, which have shorter weighted average lease expiries (WALES), will be among first to gain as inflation tailwinds and gradual reopening from the COVID pandemic push up spot rents.
“While Q3 data showed continued weakness in rents for both retail and office, anecdotally, we hear of mid-teens mark-up of retail rents. Q4 data may reveal if it is a trend or just one-offs,” he added.
Meanwhile, CGS-CIMB analysts Eing Kar Mei and Lock Mun Yee advise investors to adopt a barbell strategy – go for industrial REITs for stable yields, as well as a combination of office and retail REITs to ride on near-term growth.
“In our view, the world is now better equipped to tackle any new development in the pandemic. Unlike last year when the world went into total lockdown, the countries are less keen to impose strict measures this time round, thanks to the availability of vaccines and increasing vaccination rates,” they explained.
