To see what makes it tick, consider Frasers Centrepoint Trust, a large owner of retail stores across the island. By March, its properties were only 67% of the pre-pandemic average footfall, but renter sales were at 105% of the 2019 level. As people who previously worked from home resume a steady routine of office work, records began Cash is ringing a lot on weekday evenings, and landlords are raising rents. According to Frasers’ latest quarterly presentation, incoming leases are more expensive than outgoing leases in all but one of its malls.
As Credit Suisse Group AG analyst Soekching Kum noted in a recent report, Singapore’s retail recovery from Covid-19-related turmoil is not fully priced in. For one thing, the city’s famous Changi Airport is trying all-out woo customers as Singapore pursues the most liberal policy for visitors in Southeast Asia. International travel has captured up to 50% of pre-pandemic levels. The effects of this should be seen in the shopping by foreign tourists in the second half of this year.
But for realtors, that won’t be enough to keep investors engaged. One concern is expensive energy. To absorb the high electricity costs in their properties and make the most of the city’s reopening, REITs will require lower borrowing costs before global interest rates rise significantly. By March 31, Fraser had trimmed its leverage to 33% of assets – comfortably below the regulatory limit for Singapore REITs of 50% – and hedged its debt so that 68% of it is now at fixed rates, compared to 54% in December.
Likewise, most property owners in Singapore are trolling. This is wise. To be able to help their investors beat inflation, REITs must remain financially prudent — so that their earnings can afford the high energy and interest costs. That means less expensive debt-financed purchases of new properties, a pause on last year’s $12 billion overseas acquisition spree, and more rapid upgrades that boost rental income in their existing portfolios. Ascendas REIT, which owns industrial real estate, has spent just S$133 million ($97 million) so far this year on logistics assets in Chicago, compared to S$1.65 billion spent on overseas mergers and acquisitions in 2021, according to Bloomberg Intelligence. .
Office real estate owners have already benefited from the reopening of the economy. Suntec REIT, which owns a 2.3 million-square-foot five-tower complex in the heart of the financial centre, has given investors total returns, including dividends, of 15% so far in 2022. Credit Suisse says industrial and retail real estate investment trusts Its preferred picks now are due to its “revenue reserves and more conservative balance sheets, which provide flexibility in a higher interest rate environment.”
Singapore REITs had a banner for 2019, when they distributed total returns of over 25% including dividends. This was followed by a 22% drop in the first three months of 2020. This year is unlikely to be dramatic, but investors aren’t exactly looking for excitement. They will be happy if landlords in Singapore continue to collect – and distribute – higher rents amid the myriad pressures in the global economy. Many assets may not act this year as an inflation hedge. If property owners in the small Asian city-state prove to be an exception, they may well be sought after.
More from Bloomberg Opinion:
• Singapore’s office market can coexist with WFH: Andy Mukherjee
• This risk-based race is built on precarious foundations: John Others
• In Singapore, chicken ban poses a serious threat: Daniel Moss
This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.
Andy Mukherjee is a columnist for Bloomberg Opinion covering industrial companies and financial services in Asia. Previously he worked for Reuters, Straits Times and Bloomberg News.
More stories like this are available at bloomberg.com/opinion
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