Equity Strategy:
Asia Pacific REITs (AP REITs)
Potential returns from two key sources: capital appreciation and dividend income
What are the
tailwinds for AP REITs?
Learn more
Learn more
How do AP REITs
sustain attractive income?
Learn more
Learn more
Benefits of
versatile yield spreads
Learn more
Learn more
What are the tailwinds
for AP REITs?
1. Cyclical Interest Rate Environment
As evidenced in the Global Financial Crisis (GFC), AP REITs tend to perform during accommodative interest rate environments. We believe REITs may remain favourable for yield in today's volatile economic environment.AP REITs have performed strongly during periods of accommodative interest rate and monetary policy environments1
2. Improvement in REITs Capital Structures
In a more supportive environment after the GFC, REITs were able to lock in a lower cost of debt at fixed rates for a longer time period.Not only did resultant lowered interest payments allow REITs to distribute more of its operating income, its stronger balance sheets offered more resilience to short-term market volatility.
AP REITs' improving balance sheets in the aftermath of the GFC2
How do AP REITs
sustain attractive income?
AP REITs have provided attractive returns over the past decade3
The dividend component of REITs has historically offered attractive and sustainable sources of income for investors. Also, the stable income streams provide a buffer to cushion overall losses during down markets, and to augment total returns during market rallies. The price appreciation, meanwhile, could offer capital gains for you throughout the reference period.
Stable income streams buffer losses during down markets and augment total returns during market rallies4
Benefits of
versatile yield spreads
In all cases of the year-to-date movements in three regional REIT markets, yields have moved lower due to price appreciation.
Year-to-date yield spread movements in three regional REIT markets6
Yield spread expansion in Australia
The yield spread has increased from 239bps to 309bps above the risk-free rate. Investors receive greater compensation to assume the risk of owning REITs even though fundamentals have not deteriorated.Yield spread unchange in Hong Kong
This means the premium investors are receiving is unchanged (at 346 bps) and there is room for potential yield compression even after the strong year-to-date performance.Yield spread compression in Singapore
REIT yields and yield spreads compressed as risk free rates have moved marginally lower. Given recent price moves in Singapore's REIT market, this highlights the importance of having an active manager to identify and invest in high-quality names that offer the most attractive risk/reward profiles for investors.- Bloomberg, gross total returns in US dollar. Performance period: 31 December 2008 - 31 December 2015. Australia REITs are represented by S&P/ASX 200 A-REIT Index. Global REITs are represented by S&P Global REIT USD Index. Hong Kong REITs are represented by Hang Seng REIT Index. Singapore REITs are represented by FTSE Straits Times REIT Index. US REITs are represented by MSCI US REIT Gross Total Return Index. Asia REITs are represented by FTSE EPRA/ NAREIT Asia ex-Japan REITs Index. Asia ex-Japan equities are represented by MSCI Daily Total Return Gross AC Asia Pacific ex-Japan USD Index. US equities are represented by S&P 500 Total Return Index. Global equities are represented by MSCI ACWI Net Total Return Index. Australia equities are represented by the S&P/ASX 200 index. Hong Kong equities are represented by the Hang Seng Index. Asia ex-Japan Real Estate is represented by MSCI AC Asia ex-Japan Real Estate Index, which also includes REIT exposure. Singapore equities are represented by FTSE Straits Times Index. Past performance is not indicative of future performance.
- Respective company reports, 31 December 2018. This information is provided for illustrative purposes only.
- Bloomberg, as of June 2019. Total return of AP REITs performance is the FTSE EPRA Nareit Asia ex-Japan REITs Total Return USD Index, while price return is taken from the FTSE EPRA Nareit Asia ex-Japan REITs Index. Dividend returns are calculated as the difference between the two indices. Indices are rebased to 100 as of 31 December 2008.
- Bloomberg, as of 18 July 2019. Total return of AP REITs performance is the FTSE EPRA Nareit Asia ex-Japan REITs Total Return USD Index, while price return is taken from the FTSE EPRA Nareit Asia ex-Japan REITs Index. Dividend returns are calculated as the difference between the two indices.
- The respective country's 10-year government bond yield is typically used as a proxy for the risk-free rate.
- Bloomberg, as of 30 June 2019.
