Singapore real estate investment trust, or S-REIT, exchange-traded fund assets have doubled in two years but rising interest rates have cast a shadow over the market, according to Darren Chan, a research analyst at local brokerage Phillip Securities.
The S-REIT market is the largest in Asia ex-Japan in market capitalisation, with its ETF assets increasing 98% to S$901 million (US$673.76 million) from S$455 million two years ago.
Chan says this was primarily driven by accretive acquisitions, where an acquiring company’s earnings per share increases through buyouts.
But he notes that investors have become reluctant to pursue such acquisitions as borrowing costs rise and higher interest expenses offset net property income.
“It was challenging to make accretive acquisitions in 2022 with the rising interest rate environment,” Chan says in an interview with Asia Asset Management.
While he is “neutral” on the outlook for the S-REIT market, he believes the property trusts still appeal to asset owners.
“Institutional investors can incorporate S-REITs into their investment portfolios for those with conservative mandates, especially those yield-seeking portfolios, as S-REITs are featured with higher yield compared to other asset classes such as equities or government bonds,” Chan says.
For example, the S-REIT’s average dividend yield last year was 7.6% compared with 4.1% for the Straits Times Index of top 30 listed companies, and more than double the 3.1% yield on ten-year Singapore government bonds.
