Poor yield amid rock-bottom interest rates and lackluster growth are driving Asian real estate investment trust (Reits) to look to Europe and other markets to bolster performances.
Asian Reits are looking beyond their respective markets to chase stronger yields in assets in Australia or Europe.
Recently, Singapore-listed Frasers Logistics & Industrial Trust has exercised call options to acquire two industrial properties in Melbourne and Brisbane for a total consideration of A$69.2 million (US$52.9 million). Hong Kong listed New Century Reit, meanwhile, broke ground after it acquired Holiday Inn in Eindhoven, Netherlands last month – the first such acquisition by a Hong Kong Reit outside of Greater China.
The deals highlight the increasing investor pressure Asian Reit managers are facing in a world where high yield is scarce.“Reit is a hybrid product that the fund manager has to really watch to get the expected yield to investors,” explains Ivy Fung, head of corporate trust sales, Asia Pacific at Deutsche Bank. “There are some Reit managers in Hong Kong who have been looking at potential acquisitions in the APAC region as well as outside of the APAC region,” she says.
Frasers Logistics’ two industrial properties include one in Indian Drive that sits on 21,660 square metres of freehold land and is currently fully leased to Astral Pool Australia, while the Pearson Road property is a 99-year leasehold industrial building and fully leased to ACI Operations for a term of six years. With the acquisition, Frasers Logistics & Industrial Trust’s portfolio has increased to 53 properties across five cities in Australia.
For now, the trend is helping boost the profile of many Asian Reits. MSCI’s AC Asia Pacific Reit index, which tracks 85% of the Asian Reit universe has returned 22.18% in the January to June 2016 period. “In view of the growing demand we see from our investors for sustainable income and the rise of passive investing, this is a highly opportune time to launch the first Asia Pacific Reit ETF comprising the region’s largest dividend-paying Reits.”
Singapore Exchange recently announced the launch of the SGX APAC ex Japan Dividend Leaders Reit Index. Composed of 30 Reits, the index is designed to measure performance through dividend payouts. Moreover, the SGX partnered up with Philip Capital Management in developing an ETF (exchange-traded fund) to track the newly formed index.
Whether investments outside their markets will boost returns is yet to be seen. The industry, however, still faces challenges. Moody’s, for example, earlier this month changed its outlook for Singapore-listed Soilbuild Reit from stable to negative.
Fung says the success of Reits to generate stable cash flows depends on how diversified their portfolios are as well as the quality of their assets. She expects a continuous flow of Reits listing in Hong Kong mostly from Chinese firms.
