4 Singapore REITs Relying on AEIs and Capital Recycling to Fight Off Macroeconomic Headwinds
It has not been smooth sailing for the REIT sector over the past two years.
REITs have been pummelled by a mix of soaring inflation and elevated interest rates as the US Federal Reserve raised rates at the fastest pace in history from 2022 to 2023.
Despite these headwinds, several REITs have employed measures to help mitigate the negative impact on their distributions.
These include asset enhancement initiatives (AEIs) and capital recycling.
AEIs help to renovate and refurbish an asset to make it more attractive to tenants while capital recycling frees up capital that can be redeployed into higher-quality properties.
Here are four Singapore REITs that used these methods to ward off macroeconomic troubles.
CapitaLand Ascott Trust (SGX: HMN)
CapitaLand Ascott Trust, or CLAS, is the largest lodging trust in Asia Pacific.
The trust has a portfolio of 101 properties across 45 cities in 16 countries with assets under management (AUM) of S$8.5 billion as of 30 September 2024.
Earlier last month, CLAS announced the divestment of Citadines Karauma-Gojo Kyoto to an unrelated third party for JPY 6.18 billion (around S$53.1 million).
The divestment was made at a 40.1% premium to the property’s book value and the trust will recognise a net gain of around S$8 million.
CEO of the manager, Serena Teo, commented that this sale is part of CLAS’ active portfolio reconstitution strategy and that this property is now mature and is at the “optimal” stage of its lifecycle.
The divestment proceeds will be redeployed into higher-yielding investments.
In late October, the trust announced another divestment – that of Somerset Olympic Tower Tianjin in China to an unrelated third party.
The property was sold above book value but no financial numbers were provided.
Post-divestment, CLAS will still have four properties in China and the sale of Somerset Olympic Tower Tianjin will have minimal impact on its gross profit.
This transaction is expected to be completed by the second quarter of 2025 (2Q 2025).
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is an industrial REIT with a portfolio of 186 properties across eight countries.
Its AUM stood at S$13.4 billion as of 30 September 2024.
The manager is active in capital recycling and the REIT also has a few long-term redevelopment projects that can help to organically grow its rental income.
For the first half of fiscal 2025 (1H FY2025) ending 30 September 2024, MLT completed three acquisitions in Malaysia and Vietnam worth close to S$227 million.
It also announced or completed a total of eight divestments across Singapore, Malaysia, and China, and all were done at a premium to their book values.
The aim is to free up capital that can be redeployed into modern assets with higher growth potential.
MLT is also conducting long-term AEIs to enhance two of its assets.
One is located in Subang Jaya in Malaysia where the REIT intends to increase the property’s plot ratio to unlock value and increase gross floor area (GFA).
The other is at 51 Benoi Road in Singapore and is a redevelopment project to increase GFA from 391,000 square feet to 887,000 square feet.
Frasers Centrepoint Trust (SGX: J69U)
Frasers Centrepoint Trust, or FCT, is a retail REIT with a portfolio of nine retail suburban malls and an office building.
The retail portfolio has around 2.7 million square feet of net lettable area (NLA) and the overall portfolio is worth about S$7.1 billion as of 30 September 2024.
FCT has a solid track record of conducting AEIs in its malls.
The REIT manager recently completed an AEI on Tampines 1 Mall in August 2024 and delivered a more than 8% return on investment (ROI).
The mall has achieved full committed occupancy with more than 9,000 square feet of NLA created and deployed to prime retail floors.
Next up is the planned AEI for Hougang Mall with a targeted ROI of around 7%.
The manager intends to spend S$51 million to expand the current 16,000 square feet of NLA to 27,000 square feet.
This AEI will commence in phases from 2Q 2025 and be completed by 3Q 2026.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, is a retail and commercial REIT with a portfolio of 17 properties across four countries in Asia.
These properties have a total NLA of 10.5 million square feet and are valued at around S$15.5 billion.
Back in May, the manager sold Mapletree Anson for S$775 million and used the proceeds for debt reduction.
The consideration also netted MPACT a gain of S$10 million which is S$95 million higher than the property’s original purchase price of S$680 million.
Apart from this divestment, MPACT also continued to enhance its key retail asset, VivoCity, with its latest AEI.
From 2015 to 2023, the mall went through six rounds of AEI to convert and reconfigure the space and increase NLA.
The latest AEI involves phased upgrading at Basement 2 with Phase one seeing an increase in the number of food kiosks from 21 to 24.
The second phase will increase the NLA of the mall by 14,000 square feet through the conversion of carpark and space reconfiguration.
This AEI is scheduled for completion by the end of 2025 and is expected to generate an ROI of more than 10%.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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