Chart of the Week: Singapore REITs Go Shopping Overseas

January 28, 2022

Invest - What Type of Singapore REITs Should You Buy

All the talk of interest rate rises in the US and inflation has scared investors but it has also reminded them that in times of uncertainty, size does matter.

That’s also been the mantra for Singapore’s many real estate investment trusts (REITs) over the past few years.

As I’ve written about it previously, when it comes to Singapore’s REITs it tends to be a case of “bigger is better”.

With Singapore’s real estate and potential captive market relatively constrained, it has become obvious to many REIT managers here that they need to acquire overseas assets to keep growing that crucial distribution per unit (DPU).

Not only that but the damage wrought by on/off Covid-19 restrictions in the city state have hit some REIT sectors harder than others, particularly those in retail, commercial and hospitality.

Deals hit record high

In 2021, Singapore REITs looked overseas to try and diversify that risk. Last year, according to Bloomberg, the number of foreign acquisitions by REITs based in the Lion City hit an all-time high of 61 – a jump of over 50% on 2020.

Meanwhile, the value of these foreign deals by S-REITs soared to a record US$12.3 billion in 2021. Some of this was driven by mergers between locally-listed REITs.

One such mega-deal was the US$3.1 billion merger, announced in late December, between Mapletree Commercial Trust (SGX: N2IU) and Mapletree North Asia Commercial Trust (SGX: RW0U) – both of which had a substantial amount of concentration risk at both a country and property level prior to the combination.

Elsewhere, in March last year large industrial-focused Ascendas REIT (SGX: A17U) expanded its portfolio by buying 11 data centres in Europe – its first foray into the data centre asset class – for just over S$900 million.

Those were just a few examples of some large-scale acquisitions last year by Singapore REITs.

With rising interest rates and higher inflation, it’s going to take size (and quality) among REITs here to ensure they have pricing power in this volatile environment.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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