Singapore’s property trusts, the second-best performers in Asia in the past year, may have to diversify funding sources as they aren’t prepared for an “interest rate shock,” according to Fitch Ratings.

Singapore REITs to Vary Funds on Interest Rates: Southeast Asia

Singapore’s property trusts, the second-best performers in Asia in the past year, may have to diversify funding sources as they aren’t prepared for an “interest rate shock,” according to Fitch Ratings.

The city’s real estate investment trusts or REITs have been increasing short-term debt with record-low interest rates, according to Johann Kenny, director of corporates at Fitch. They face refinancing risks when borrowing costs rise, and may be pushed to sell assets or shares to boost their funding, he said.

“Singapore REITs are not really well equipped to withstand an interest rate shock,” Kenny said in a phone interview from Sydney yesterday. “When a rating agency looks at a company, we look at the long-run average through the cycle of the interest rate environment and we don’t see the current low interest rates as a sustainable model from a macro-economic perspective.”

Singapore REITs, the biggest fundraisers in the city’s initial public offering market in the past year, had relied on short-term debt to reflect the length of commercial leases, Kenny said. Their funding costs in the past six years don’t reflect the challenges in a “normalized” interest rate scenario, he said.

The REITs raised S$3.4 billion ($2.7 billion) or 68 percent of the S$5 billion of stock sold in Singapore IPOs in the past 12 months, according to data compiled by Bloomberg. The biggest share sale was the S$1.6 billion raised by Mapletree Greater China Commercial Trust (MAGIC) (MAGIC), a REIT that owns assets including the Festival Walk shopping mall in Hong Kong and an office complex in Beijing. The trust, which was also Asia’s biggest share sale this year, surged 13 percent since its trading debut on March 7.

Singapore Returns

Singapore REITs posted a one-year total return of 45 percent, trailing Japan’s 63 percent in Asia, according to data compiled by Bloomberg. The measure tracking REITs in Singapore climbed 29 percent in the past year, compared with the 8.2 percent increase in the Singapore benchmark Straits Times Index (FSSTI).

Debt held by Singapore property trusts make up 31 percent of total assets, higher than the ratios for Hong Kong, Taiwan and South Korea, according to data compiled by Bloomberg. Still, it’s lower than the 39 percent for debt held by Australian REITs, or 44 percent for Japanese trusts, the data showed.

Singapore’s REITs have extended the maturity of loans since the 2008-2009 financial crisis, when almost 50 percent of their debt was due in 1 1/2 years, according to Vikrant Pandey, a Singapore-based analyst at UOB Kay Hian Pte.

“REITs have diversified their sources of funding and extended debt maturities,” Pandey said. Still, “their basic model is perpetual refinancing of debt — there is no repayment of debt in the REIT model so you have that risk of refinancing.”

Conservative Bias

ARA Asset Management Ltd. (ARA), which manages about S$22 billion of assets through property trusts and funds, said it plans to avoid the missteps by some competitors during the financial crisis when they took on too much debt. The company, which has almost no leverage, is seeking to double its assets over the next five years through acquisitions.

“Our strategy is not an aggressive, highly-leveraged, exotic trading investing strategy,” Moses K. Song, chief investment officer at ARA Asset, said in an interview in Singapore on March 11. “We don’t want our investors to be concerned that management is going around and trying to sort out its own balance sheet issues. If there’s a bias, it’s to be conservative.”

The company’s Fortune REIT (FRT) was the best performer on the Singapore REIT index in the past year after rising 69 percent, followed by Frasers Commercial Trust (FCOT). Ascendas India Trust (AIT) was the only stock on the gauge to drop, falling 3.5 percent.

Industrial Taxes

Singapore also imposed as much as 15 percent in stamp duties on sellers of warehouses and logistics buildings to ease speculation after prices doubled in the past three years and outpaced the increase in rents. Asia’s first curbs on industrial properties may pare sales by 10 percent this year, according to Cushman & Wakefield Inc.

“Industrial tends to be extremely cyclical and we are beginning to see the cycle change, weakening of the operating environment,” Fitch’s Kenny said. “You could potentially see both high leverage and high vacancy rates.”

A total of 30 REITs and property trusts were listed in the city-state with a combined value of S$56 billion, making up 6 percent of the total market capitalization of stocks traded, Lawrence Wong, head of listings at the Singapore Exchange Ltd. (SGX), said in a statement on Feb. 27, adding that Singapore has the highest number of cross-border asset REITs in Asia.

More REITs are expected. Singapore Press Holdings Ltd. (SPH), the newspaper publisher that owns the Paragon mall along the city’s shopping belt, said a week ago it’s exploring a real estate investment trust. Bank Julius Baer & Co. estimates the trust may have S$3.1 billion of assets.

“Currently, Singapore REITs have a stable operating environment which won’t change over a 12-month period,” Kenny said. “What we are flagging here is on the leverage and liquidity. Their dependence on bank debt means they don’t really have potential from an interest rate perspective to sustain a massive shock in interest rates.”

To contact the reporter on this story: Pooja Thakur in Singapore at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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