REIT ASIAPAC
COVER STORY
Financial Crisis. We believe that currently, there isn’t substantial
regulatory pressure for REITs to cut dividends. What could
potentially affect dividend is the potential impact from the
coronavirus pandemic and its aftermath on rental reversal as well
as the vacancies that could arise in Asia Pacific REITs’ portfolios.
The current market prices of Asia Pacific REITs may already
reflect the downside risks from potentially weaker earnings.
impact of downward rental adjustments. In Japan, the Bank of
Japan has doubled its J-REIT purchasing program to JPY 180
trillion (US$1.7 trillion) which supported the TSE (Tokyo Stock
Exchange) REIT Index recovery.
Here’s what some asset managers and analysts say about
distributions, rentals, government austerity measures and the
outlook for the sector.
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ASIA PACIFIC:
PATRICK MA,
Research Director, Admiral Investments
JEROEN VREEKER ,
Such policies have already led landlords and REITs to forego
some of their rental income, and in some cases, cash previously
preserved, to prepare for rental restrictions.
Index Analyst Global Property Research
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Cover Story
Asia’s REITs likely to
maintain dividends despite
worst performance on record
Concerns centred on how long
the pandemic would last
Some global banks have scrapped dividends this
year. Do you expect Asia Pacific REITs to cut
dividends too?
On the potential impact of these policies, the main concerns are
firstly, whether such measures will become more permanent
throughout the “pandemic-induced” recession, and secondly, if
the beneficiaries of rental waivers or deferrals may terminate the
leases despite such efforts. We view the first concern as unlikely
as we believe such measures to be temporary, given expectations
that the pandemic will not be prolonged.
Further, we observed that governments have tended to be
supportive. The Singapore government has extended the timeline
for Singapore REITs to distribute at least 90% of their taxable
income from three months to 12 months for Financial Year (FY)
2020 and raised the leverage limit from 45% to 50%.
Asia Pacific REITs posted their weakest performance on record
in the first quarter of this year, but experts do not expect REITs
to scrap dividends, with some saying the recent sell-off might be
overdone. unclear, Patrick Ma, Research Director for Admiral Investments,
pointed out that during the Global Financial Crisis, Asia Pacific
REITs as a group maintained their dividend payouts between
June 2008 and December 2009. The region’s REIT sector fell 29%, steeper than Asian equities
which dropped 20% in the same period. While the outlook is One possible saving grace is that most leases for Asia Pacific
REITs are under multi-year terms, which cushions the immediate Thus, Asia Pacific REITs managed to maintain their dividend
payouts even as conditions were tough during the Global
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For example, Singapore’s SPH REIT has announced that it will
retain 80% of its second-quarter (2Q) FY 2020 distributable
income, which will lead to a 79% reduction for its DPU. The REIT
has done so to prepare for the support measures for tenants
mandated by the Singapore government.
We believe unilateral dividend cuts by Asia Pacific REITs to be
unlikely at this point. Most Asia Pacific REITs are either regulated
by codes that specify the dividend payout ratio, such as those in
Hong Kong and Singapore, or their dividend payouts are linked
to tax reduction, such as REITs in Japan. Any government action
to demand that REITs cut dividend as a way to free up cash in
support for small tenants will conflict with those regulations.
Also, any rule change will be lengthy and likely to be contested,
which may not be in governments’ best interests.
While we don’t know when the pandemic will recede, we still
believe Asia Pacific REITs will offer steady payouts. Let’s look at
a hypothetical REIT portfolio during the Global Financial Crisis
in 2008 and use data based on the GPR/APREA Composite REIT
Index (which covers Asia Pacific REITs). For a US$1,000,000
portfolio in June 2008, an investor would have received
US$12,057.37 in dividends that quarter. The same portfolio in
June 2009 would be worth US$615,920.13 but would still yield
US$12,859.63 in dividends that quarter. By December 2009,
the portfolio’s value would have risen to US$743,742.05, and it
generated US$12,085.97 in dividends that quarter.
Australia and Singapore, among others, have
implemented policies to support tenants through
temporary rental waivers and deferrals. What are
the repercussions from such government-mandated
schemes on REITs?
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What is the outlook, and would
government stimulus help?
Despite monetary and fiscal stimulus by most governments,
the global economy will likely face a recession in 2020 and an
uncertain future ahead. This will affect the rental and occupancy
outlook of REITs, especially those with exposure to the hospitality
and retail sectors.
Against this backdrop, rental income for Asia Pacific REITs will
come under pressure, which could affect dividend payouts.
However, we believe Asia Pacific REITs to be relatively resilient
under the circumstances. Most leases for Asia Pacific REITs are
entered under multi-year terms, which will cushion any immediate
impact from downward rental adjustments. For those Asia Pacific
REITs exposed to industrial properties, non-discretionary retail,
and to a certain extent office property, the pressure may be less.
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