SINGAPORE (April 8): Since Mar 23, when the FTSE Straits Times REIT Index touched its lowest level this year, it is up around 16.5% as at Apr 8.  The top five performers since Mar 23 have done much better (see chart 1). IREIT Global for instance is up 47%, followed by Cache Logistics Trust up 43% and Frasers Logistics and Industrial Trust which gain 37%. All three REITs have experienced some form of corporate action.  

Prior to Apr 6, Tikehau Capital and City Developments (CDL) held 16.64% and 12.52% of the units in IREIT Global, respectively. Following the purchase of additional stakes in IREIT from Tong Jinquan announced on Apr 6, Tikehau Capital now owns 29.20% while CDL owns 20.87% of the units in IREIT. A new unitholder, AT Investments, has acquired a 5.50% stake in IREIT. With Tikehau and CDL as sponsors, IREIT is likely to have a new beginning.

Cache too has had a change of sponsors, with LOGOS, a developer of logistics properties owning Cache’s manager. FLT completed its merger with Frasers Commercial Trust, diversifying its assets to include business parks and office buildings. FCOT’s last day of trading is Apr 9.

It is also clear that logistics properties are likely to be less affected than retail, hospitality and office during Covid-19. No surprise then that logistics REITs have been able to hold their own.

Elsewhere, CapitaLand Retail China Trust is up 37% since Mar 23. Unlike IREIT, Cache and FLT, CRCT’s recovery is based on organic performance. According to CRCT, shopper traffic has rebounded by 40-80% of its average daily shopper traffic reached in 2019. On Apr 6, CRCT announced that tenants’ opening rate has been steadily increasing and reached as high as 80% to 90% in some malls by end March.

The rebound in the Chinese economy is being closely watched as the rest of the world eyes an exit strategy from Covid-19 curbs. In that sense, CRCT and Sasseur REIT are likely to be lead indicators in the market.

Ideally REITs are priced off risk free rates. The yield spread (in chart 2) is clearly expanding because of financial stress despite falling risk-free rates. However, as distributions per unit (DPU) start getting cut because of the circuit breaker in Singapore and lockdowns elsewhere in developed markets such as Europe, US and Australia, yields may actually fall because DPUs are likely to shrink.