The Singapore REIT market is going through a shake up as the economy modernises. Florence Chong reports

Shareholders in CapitaLand Group voted unanimously in August to hive off their development business, creating a new listed company to capitalise on rapid growth in funds under management globally.

CapitaLand’s volatile development business has become a private company in a stable of Singapore entities owned by Temasek, Singapore’s sovereign wealth fund. Now freed of its capital-intensive development operations, CapitaLand Investment is looking to grow its S$115bn (€72.5bn) in assets under management and fee income for services.

Temasek is the mover behind current market consolidation in Singapore. At one point, it held indirect stakes in 17 listed Singapore REITs, including half a dozen trading under the CapitaLand umbrella.

Temasek is on a drive to create a more efficient and relevant capital market in Singapore, according to Wong Yew Kiang, head of regional REITs with the brokerage firm CITIC CLSA .

He says CapitaLand traded in a narrow band of S$2.80 to S$4 per security since 2010, and that the market derated the stock because its main activity was residential development. Its two other key businesses, retail malls and serviced apartments, had been disrupted by the growth of e-commerce and sharing economies.

Wong points out that having residential as a core business exposes companies to government regulations and housing policies. Housing is tied closely to socio-economic policies in Singapore, just as elsewhere in the world. “In Singapore, there have been 10 rounds of property-tightening measures to cool housing markets over the past decade,” he says. “So whenever residential property prices go up, developer share prices underperform in anticipation of further cooling measures from the government.”

The split of CapitaLand’s development and investment businesses is the latest in a wave of restructuring under way in Singapore’s REIT sector. CapitaLand Mall Trust, the first REIT to list in Singapore in 2002, last year merged with CapitaLand Commercial REIT to become CapitaLand Integrated Commercial Trust.  

CapitaLand itself took over Ascendas-Singbridge, another leading Singapore property group, in 2019 for S$11bn.

Temasek also owns 100% of Mapletree Investments and 20.4% of Keppel Corporation. Between them, these two companies manage nine listed vehicles in Singapore – giving Temasek an indirect stake in all of them.

Wong predicted the mergers of the large Temasek-owned S-REITs in a 160-page comprehensive report, Singapore Strategy: The Red Dot, published in 2019. He says mergers have since come to pass, and he does not rule out further consolidation.

Keppel Corporation has bid S$2.2bn to take over Singapore Press Holdings (SPH), which owns The Straits Times, Singapore’s daily newspaper which has been in continuous publication since 1845 and is about to spin off its loss-making media operations into a private company.

Wong says Temasek needs to shake up Singapore’s capital market, which he says has lost ground to Hong Kong since the 2008 financial crisis. “If you look at the Singapore stock market, we are stuck with the old economy – banks, industrials, oil and gas and property – and we have failed to attract companies in the new economies, including technology and e-commerce,” he says. “Conversely, Hong Kong has done a successful job in attracting new listings in these economies. The likes of Alibaba and Tencent are traded on HKEX.”

Temasek wants to attract new-economy companies to list in Singapore to create an ecosystem and to establish a benchmark that could attract further listings. Singapore’s S-REIT market, which has managed to create critical mass, is Asia-Pacific’s third-biggest REIT market – after Japan and Australia – with a market capitalisation of around S$100bn. 

“If you look at the Singapore stock market, we are stuck with the old economy” - Wong Yew Kiang

In his report, Wong wrote that the key to the success of S-REITs was “Temasek’s push to securitise quality Singapore assets through entities such as CapitaLand, Ascendas-Singbridge, Mapletree and Keppel Corp”. The report continued: “This differentiates Singapore from other key Asian cities, where trophy assets are tightly held by families. [This] hinders the development and appeal of the REIT market.”

Of the 40-plus S-REITs trading on the Singapore stock exchange, there is a long tail of small, illiquid REITs trading at discounts. These are potential takeover candidates for larger peers seeking assets in areas like logistics, which have risen sharply in value in the private market.

Given the size of its domestic market, Singapore has become something of a hub for companies owning offshore assets and wanting to list them through an IPO in the city state. Probably close to two-thirds of the REITs own assets in Australia, the US, Europe, India, China, Japan or elsewhere.

Singapore authorities are comfortable with listing offshore assets on the Singapore Exchange because they mostly follow Singapore’s stringent disclosure and compliance rules. For this reason, REIT M&A in Singapore has a knock-on effect on other listed REITs.

The latest shake-up has seen Hong Kong-listed ESR buy Singapore-based ARA Asset Management, which itself was delisted in 2017. Once the US$5.2bn (€4.4bn) deal is settled, management control of ARA-managed REITs will pass to ESR. The most obvious REITs affected include: the large Suntec REIT, Cromwell European REIT, and ARA Logos REIT, all listed in Singapore; Cromwell Group, listed in Australia; Prosperity and Fortune REIT, listed in Hong Kong; and Kenedix in Japan.

Asia-Pacific REITs: Proliferation across the region