Asia REIT Market Insight 2023

2022-2023 ASIA REIT MARKET INSIGHT

In this report we define dividend yield as the ratio of dividends for the past 12 months (total dividends for the past year) to the stock market price of the REIT (price as of Dec. 31, 2022). In 2022, the average dividend yield of REITS in Hong Kong was 7.9%, up 80 basis points (bps) on the previous year's 7.1%, while that of Singapore was 7.7%, up 157 bps on the previous year's 6.1%. The Japan market registered an average dividend yield of 4.2%, 40 bps higher than the previous year's 3.8%. The increase in dividend yield is related both to REITs’ operations and secondary market prices. 3.2 Dividend Yield

At the end of 2022, the yield spreads in Hong Kong, Singapore, and Japan were at 4.2, 4.6, and 3.8 percentage points (pp), respectively. As expected, the yield spreads in Singapore and Japan were slightly higher than in 2021. In contrast, the yield spread in Hong Kong was 149 bps lower than in 2021, as the dividend yield did not increase proportionately with the rise in government bond yields, as REITs in Hong Kong have been traded at a discount for several years.

3.1 Asset-to-Debt Ratio | Gearing Ratio

In this report, we define the gearing ratio as the ratio of total liabilities to total assets. The gearing ratio of REITs listed in Hong Kong and in Singapore is capped at 50% of the total asset value, either directly or via special purpose vehicles (SPV). Japan’s authorities place no restrictions on REIT gearing ratios, but stipulate that REITs may only borrow from qualified institutional investors. In 2022, the average gearing ratio in the Hong Kong REIT market was at 27.8%, remaining flat compared to the previous year. Its median was 22.8%, far below the 50% limit. Two REITs had gearing ratios of over 40%: Regal REIT (hotel) and Yuexiu REIT (commercial). The average gearing ratio in the Singapore REIT market was at 37%. Its median was 37.5%, showing little change compared to the previous year, which was lower than the regulatory requirement but higher than the average level in the Hong Kong market. Six REITs had gearing ratios above 40%, including CapitaLand Integrated Commercial Trust (CICT) and Suntec REIT, whose underlying assets chiefly comprise office and commercial properties located in Singapore. Three products had gearing ratios below 30%: Fraser Logistics Trust (industrial logistics), SASSEUR REIT (outlet retail), and Digital Core REIT (data centers).

Figure 6: Gearing Ratio

10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

44.6

37.0

27.8

Figure 7: Comparison of Dividend Yield: REITs vs. 10-Year Government Bonds

0.0 5.0

9.0%

日本 Japan

新加坡 中国香港 Singapore Hong Kong, China

百

7.9%

7.7%

8.0%

Source: Bloomberg Database, SGX website, compiled by Cushman & Wakefield Valuation & Advisory Services

7.0%

6.0%

In Japan, J-REITs may determine their optimal debt levels to minimize their costs of capital. Low interest rates have meant their average gearing ratios have been higher than in the Greater China markets, which have mandatory gearing ratio limits. In 2022, the gearing ratios of J-REITs were relatively concentrated, with both the average and the median at 44.6%, up just 0.6 percentage points compared to the previous year. Overall, debt burdens tend to align with the parent company’s funding strategy, with the top five REITs by market value having lower financial leverage than the national average. A number of the top ten REITs in terms of debt ranking focus on residential apartment assets, with their high gearing ratios reflecting the low volatility of the underlying asset performance.

4.2 pp

4.6 pp

5.0%

4.2%

3.7%

4.0%

3.1%

3.0%

3.8 pp

2.0%

1.0%

0.4%

0.0%

中国香港 新加坡 Singapore

日本 Japan

Hong Kong, China

Dividend Yield 10-Year Government Bonds

Source: Bloomberg Database, Hong Kong SAR Exchanges website, SGX website and Tokyo Stock Exchange website, compiled by Cushman & Wakefield Valuation & Advisory Services

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