REITs boost DPUs with acquisitions as tough economy pressures rents

It has been a rough year for commercial property. The retail sector has been under pressure from weak consumer spending, labour shortages and growing competition from e-commerce players. Meanwhile, office buildings and industrial properties have been affected by oversupply and economic uncertainty. Yet, the pace of property securitisation has taken off in the past 12 months, fuelled by hordes of investors reaching for yield, even as interest rates are coming off their bottoms and starting to rise.

In 2016, of the $5.7 billion in equity raising, DBS Group Holdings alone was involved in $4.3 billion of fundraising for real estate investment trusts, including all three new REIT listings. The three REIT listings were Manulife US REIT, Frasers Logistics and Industrial Trust and EC World REIT. In 2015, only $4.5 billion was raised and only one REIT was listed that year — BHG Retail REIT, which raised $120.94 million.

Ironically, the hunger for yield had also helped REITs grow their portfolios and deliver higher distributions per unit (DPUs) despite the underlying weakness in the commercial property market. The largest acquisition in 2015 was by OUE Commercial REIT, which bought 83.3% of One Raffles Place from OUE for $1.1 billion. The same year, CapitaLand Mall Trust also acquired Bedok Mall for $780 million from CapitaLand.

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