Reit privatisation unsurprising amid higher-for-longer interest rates, but investment opportunities remain: SGX equities head

[SINGAPORE] Real estate investment trusts (Reits) being taken private is unsurprising as the sector is facing some challenges, but investment opportunities are still there for those “willing to look beyond the surface”, said Singapore Exchange (SGX) head of equities Ng Yao Loong on Saturday (May 24).

Speaking at the opening of the Reits Symposium at the Suntec Convention Centre, Ng said Reits as an asset class have a “lower correlation with macro uncertainties as compared to equities and other asset classes”, which makes the sector a compelling alternative in market volatility.

“But the Singapore Reit (S-Reit) sector is facing some challenges, and not just from the higher-for longer interest rate environment,” he said.

The sector is currently trading at a “cyclically low” valuation of 0.8 times price-to-book ratio, or around 20 per cent discount, and a forward dividend yield of around 6 per cent.

“Perhaps not surprisingly, we see Reits being privatised or in the process of being taken private, such as Paragon Reit and Frasers Hospitality Trust,” he said.

Despite this, there could be investment opportunities for investors who look deeper into the sector, noted Ng.

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“We see discerning investors gravitate towards well-managed Reits with strong fundamentals. This should be an encouragement to Reit sponsors and managers to do more to manage their asset yield and optimise their capital structure,” he said.

He added that privatisation of Reits is “part and parcel of corporate restructuring to unlock value”.

“We do see a healthy Reit initial public offering pipeline – particularly in emerging sub-sectors like data centres, purpose-built living spaces and logistics assets,” he said.

While he did not name companies, one possible Reit in the works could be the upcoming Nippon Telegraph and Telephone (NTT) DC Reit. Japanese-listed NTT said on May 9 that it would be transferring six of its data centre assets to its planned S-Reit for around US$1.6 billion.

Investor education

Ng also highlighted the importance of investor education, noting the range of resources SGX offers through its channels such as SGX Academy, its website and social media.

“A well-informed investor is essential to fostering a resilient and sustainable financial ecosystem,” he said.

One such resource is the newly launched Reits on the Move initiative by the Securities Investors Association (Singapore), or Sias. It is a 10-part educational series that aims to give investors a hands-on educational experience about the S-Reit sector.

The sessions will be guided by research analysts, trading representatives and Reit managers, offering investors practical insights into Reit fundamentals, portfolio strategies and the broader investment landscape, said Sias in a separate press statement.

The initiative is supported by SGX, the Reit Association of Singapore and the Securities Association of Singapore.

It features 12 participating Reits: Aims Apac Reit; CapitaLand Ascendas Reit; CapitaLand Ascott Trust; CapitaLand Integrated Commercial Trust; ESR Reit; Frasers Centrepoint Trust; Keppel Reit; Lendlease Global Commercial Reit; Mapletree Industrial Trust; OUE Reit; Starhill Global Reit and Suntec Reit.

More than 300 investors will be given exclusive access to behind-the-scenes tours of Reit-owned properties in Singapore.

David Gerald, founder, president and chief executive of Sias, said: “Going beyond reading annual reports or attending webinars, investors will now walk through the actual assets, engage the managers, ask questions and understand the fundamentals as part of investor education.

“Investors will need to understand and assess the risks involved as well when investing in Reits.”

SGX’s Ng noted that Reits have different strategies, countries and fundamentals, and “are not a singular, homogeneous sector”.

“Gems can be found, especially by those who put in the effort to understand the quality of the underlying assets and management,” he added.