Home Capital Property

As headwinds swirl, how fortified is your REIT?

Goola Warden
Goola Warden3/19/2018 07:30 AM GMT+08  • 11 min read
As headwinds swirl, how fortified is your REIT?
SINGAPORE(Mar 19): Real estate investment trusts are in a difficult place currently, as investors value them according to their yield spreads and REIT yields are measured against the yield of the 10-year Singapore Government Securities. As at March 9, 10-
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

SINGAPORE(Mar 19): Real estate investment trusts are in a difficult place currently, as investors value them according to their yield spreads and REIT yields are measured against the yield of the 10-year Singapore Government Securities. As at March 9, 10-year SGS yield stood at 2.44%, up 22% from just 2% on Jan 2. The REIT spread is 3.69%, based on the FTSE REIT Index, which is below the five-year average of 4.12%. If 10-year yields rise further, REIT prices would have to fall, to compensate for the yield spread.

Based on data compiled by the Asia-Pacific Real Estate Association, Singapore REITs outperformed those in every other REIT market in Asia in 2017, with a total return of 39%. A repeat of that performance looks near impossible this year. However, during the February market selloff, APREA’s statistics show that Asian REITs were the most resilient, losing just 2.9% compared with a 6% decline in global REITs. US REITs fell 6.7% and European REITs lost 6.2%. Asian REITs were also less volatile over a 36-month period, with a volatility measurement of 8% versus the global REIT average of 12%.

Yet, for all their stability, S-REITs cannot escape the rising interest rate cycle. The US tax cuts signed into law in December are increasingly being viewed as inflationary. Even more inflationary to the manufacturing supply chain are the import tariffs on steel and aluminium that the US government is planning to impose on its trading partners. No surprise then that the US Fed funds rate (FFR), now at 1.5%, is expected to rise 25 basis points (bps) this month.

For more insights on corporate trends...
Sign In or Create an account to access our premium content.
Subscription Entitlements:
Less than $9 per month
Unlimited access to latest and premium articles
3 Simultaneous logins across all devices
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)
×
Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.
Unlock unlimited access to premium articles with less than $9 per month. Subscribe Now