Record M&A in Singapore property managers as investors pile in

Underpinned by a global hunt for yield, Singapore’s real estate investment trusts are having a bumper year in deal-making as well as fundraising. The mantra that bigger is better will continue to drive capital market activity in the sector, analysts say.

Singapore-listed Reits have forked out US$16.9 billion to purchase assets this year, already triple the previous peak reached in 2014. The sector has also raised a record amount in follow-on share sales, riding an 18 per cent gain in the FTSE Singapore REIT Index, which is more than four times the rise in the broad benchmark in the city-state.

The mergers and acquisitions have created some of the largest Reits in the region. The allure of being big: the entity would find it easier to get a place in global benchmarks and portfolios, raise funds for expansion and tackle competition. For those reasons, expanded companies are better investments for stock buyers.

“Reits are going to be a go-to sector for the next year as consolidation will add another reason to buy alongside yields,” said Jin Rui Oh, a Singapore-based director at United First Partners. The enlarged entities would get better market value, analyst coverage and potential index inclusion, he added.

Singapore Reits will deliver 12 per cent to 15 per cent returns over the next year and the deals will continue, said Mr Oh, who specialises in trading special situations created by mergers and acquisitions.

Reits will continue to lure investors amid interest-rate cuts by global central banks, which has already led to more than US$12 trillion of negative-yielding debt. The chase for yield has also made Singapore Reits more expensive, with the sector’s estimated dividend yield at 5.36 per cent, almost one percentage point below the level at the beginning of the year.

M&A Juggernaut

In the largest deal this year, CapitaLand spent S$6 billion to purchase two real estate units from Temasek Holdings.

In April, OUE Commercial Reit agreed to buy OUE Hospitality Trust to create one of Singapore’s 10 biggest Reits. Then in July, Ascott Residence Trust and Ascendas Hospitality Trust agreed to create the largest hospitality trust in the Asia-Pacific region, with S$7.6 billion of assets.

The latest deal to emerge involves Frasers Logistics & Industrial Trust and Frasers Commercial Trust, which are planning to consolidate, according to people familiar with the matter.

Analysts at United First and CLSA expect more deals in the coming year, especially among commercial and industrial Reits. “They are emboldened by the success,” United First’s Mr Oh said.

To help facilitate the deal spree, Singapore’s central bank is considering looser debt rules that could spur more acquisitions by property managers.

Size matters

For bigger real estate trusts, one of the most sought-after gauges to be part of is the 307-member FTSE EPRA/NAREIT Global REIT Index. That usually means a boost in profile, liquidity and valuations.

The gauge saw three additions from Singapore this year – Frasers Logistics & Industrial Trust, Frasers Centrepoint Trust and Keppel DC Reit – taking the total number of the city’s Reits in the index to 17. That’s the most in Asia outside Japan, according to data compiled by Bloomberg. All three have outperformed the Singapore index for Reits this year.

To finance acquisitions, Singapore Reits have raised a record US$2.8 billion in secondary share sales and US$2.2 billion in initial public offerings in 2019, according to data compiled by Bloomberg. Most of these issues were oversubscribed and priced near the the top end of the range.

“M&As will extend the rally and solidify Singapore’s position as a Reit hub in Asia,” Mr Oh said.

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