Singapore’s real estate investment trusts became popular because they had the things local investors love — steady income, high yields and property. With most annual reports in, the picture for the industry isn’t inspiring. Indicated dividend yields have continued untouched even as return on assets has plunged.
As interest rates rise, investors will demand even higher dividend yields. At the same time, because the REITs owe more, they’re more impacted by higher interest payments.
Meanwhile, property prices have plunged. Last week it was reported that six industrial-property REITs recognized a collective drop in the value of their assets of S$296.3 million ($208.5 million) in 2016, enough to wipe out all the gains they booked since 2012.
The URA index shows that rents for shops in the central region of Singapore has fallen 11 % in the past two years – back at the level it was a decade ago.
Currently, some 20 listed REITs’ shares are trading below 70 % of net asset value. Some, like Saizen REIT, are trading at deep discounts to net asset value because they have already agreed to sell their property holdings. Others, like Sabana Shariah Compliant REIT, are studying similar options.
This confirms the worst fear: that the current population of publicly traded REITs in Singapore is unsustainable.