Rents are down, but REIT DPUs are still high. What’s going on?
By: Gwyneth Yeo
SINGAPORE (Jan 6): It has undoubtedly been a rough year for commercial property. The retail sector remained under pressure from weak consumer spending, labour shortages and growing competition from e-commerce players. Meanwhile, office buildings and industrial properties were affected by oversupply and economic uncertainty.
Yet, that has not slowed down the pace of property securitisation in the past year, as investors continued to hunt for yield.
In 2016, DBS helped raise $4.3 billion for REITs alone, including three new REIT listings: Manulife US REIT, Frasers Logistics and Industrial Trust and EC World REIT. In 2015, only one REIT was listed — BHG Retail REIT - which raised $120.94 million.
What’s interesting is how REITs have been able to cater to that demand for yield by growing their portfolios and delivering higher distributions per unit (DPUs) despite the underlying weakness in the commercial property market.
In 2016, Mapletree Commercial Trust (MCT) acquired Mapletree Business City Phase 1 from Mapletree Investments for $1.86 billion. CapitaLand Commercial Trust (CCT) acquired the 60% of CapitaGreen it did not already own from CapitaLand and Mitsubishi Estate Asia for $927 million.
Both these transactions helped the respective REITs boost their DPUs.
“Despite the challenging outlook, securitisation of the assets has not been a problem for good-quality assets with strong underlying occupancy and yields, especially for Mapletree Business City Phase 1 and CapitaGreen,” says Vijay Natarajan, an analyst at RHB Securities. “Investors are taking a longer-term view of the market despite the short-term headwinds and challenges.”
Can the REITs keep delivering higher DPUs despite the tough operating environment? What happens when interest rates rise? Which REITs still offer upside now?
By: Gwyneth Yeo
SINGAPORE (Jan 6): It has undoubtedly been a rough year for commercial property. The retail sector remained under pressure from weak consumer spending, labour shortages and growing competition from e-commerce players. Meanwhile, office buildings and industrial properties were affected by oversupply and economic uncertainty.
Yet, that has not slowed down the pace of property securitisation in the past year, as investors continued to hunt for yield.
In 2016, DBS helped raise $4.3 billion for REITs alone, including three new REIT listings: Manulife US REIT, Frasers Logistics and Industrial Trust and EC World REIT. In 2015, only one REIT was listed — BHG Retail REIT - which raised $120.94 million.
What’s interesting is how REITs have been able to cater to that demand for yield by growing their portfolios and delivering higher distributions per unit (DPUs) despite the underlying weakness in the commercial property market.
In 2016, Mapletree Commercial Trust (MCT) acquired Mapletree Business City Phase 1 from Mapletree Investments for $1.86 billion. CapitaLand Commercial Trust (CCT) acquired the 60% of CapitaGreen it did not already own from CapitaLand and Mitsubishi Estate Asia for $927 million.
Both these transactions helped the respective REITs boost their DPUs.
“Despite the challenging outlook, securitisation of the assets has not been a problem for good-quality assets with strong underlying occupancy and yields, especially for Mapletree Business City Phase 1 and CapitaGreen,” says Vijay Natarajan, an analyst at RHB Securities. “Investors are taking a longer-term view of the market despite the short-term headwinds and challenges.”
Can the REITs keep delivering higher DPUs despite the tough operating environment? What happens when interest rates rise? Which REITs still offer upside now?
