2012 REIT report

Singapore: a more stable S-REIT market

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Current state

Turbulence in global financial markets, an uncertain global economic outlook and the European debt crisis contributed to the volatility in the Singaporean S-REIT market in 2011 and the first quarter of 2012.

Improving S-REIT market conditions could presage the listing of more S-REITs this year and draw more equity capital into the market.

Although S-REITs have reported improved earnings, their units have underperformed the broader Singapore market, and sponsors have been cautious about starting REITs. Only one initial public offering of an S-REIT was completed in 2011 although a real estate business trust also listed during that year. No IPOs were launched in the first quarter of this year.

Market outlook

Some market analysts say that if the global economic outlook improves in 2012, Singapore’s stock market could stabilize and S-REITs could start to attract more investment3.

Indeed, S-REITs have outperformed the broader Singapore stock market by the third quarter of 2012. Recent IPOs also seem to indicate increasing interest in equity offerings: Ascendas Hospitality Trust was offered on 27 July 2012, and Far East Hospitality Trust was offered on 27 August 2012, although a more recent offering for Dynasty REIT was canceled.


Under Singapore’s REIT model, S-REITs must pay at least 90% of their taxable income to unitholders in the form of distributions. That leaves S-REITs with little retained capital, so they may need to try to raise equity in secondary offerings to help finance property investments.

The problem is that many S-REITs have been trading below NAV, which rules out secondary offerings: investors will not support the acquisition of properties that are not yield accretive.

Furthermore, S-REITs are limited in borrowing to finance property investments. The debt-to-asset ratio of an S-REIT with a credit rating cannot exceed 60%; the ratio of an S-REIT without a credit rating cannot exceed 35%. The challenges for S-REITs are to raise and invest capital within these constraints and to make investments that will maximize cash flows, returns on investments and property values.


S-REITs are finding opportunities to grow internally by raising rents, increasing occupancies and efficiently managing operating costs. In the retail sector, Singapore’s retail REITs, led by CapitaMall Trust, have had stable earnings. Retail occupancies are in the 90% range, and some operators have been able to raise rents.


Improving S-REIT market conditions could presage the listing of more S-REITs this year and draw more equity capital into the market. While existing REITs are limited in their ability to raise equity and debt capital, they have opportunities to grow both internally and externally and, in the case of hospitality and health care S-REITs, to expand within the Asian region. Overall, Singapore is continuing to evolve and grow into a mature REIT market.

  1. 3 “Singapore REITs could see more fundraising – CIMB,” Reuters, 23 March 2012, http://www.reuters.com/article/2012/03/23/stocksnews-asean-singaporereitsidUSL3E8EN1T220120323.
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