GPR/APREA Index Report - August 2021

Overview

Asia Pacific equities reversed two months of consecutive declines to record their best monthly performance since December last year. The benchmark, which has been roiled by China’s regulatory crackdown in sectors from technology, education and property, rose 2.5% in August to outperform the regional property counters. Investors took heart at comments made from the Fed’s closely watched annual Jackson Hole meeting, after the Fed Chair reiterated that tapering does not mean tightening. The region’s markets also cheered after the Chinese central bank made its biggest weekly cash injection into the banking system since February. Still, the bounce came after July’s pummeling as it continued to lag the region’s property counters year-to-date with just 2.4% returned, as compared to the region’s real estate and REIT benchmarks tracked by GPR/APREA, which had risen 5.5% and 10.7,% respectively.

Listed Real Estate

The wider GPR/APREA Listed Real Estate rose 1.2% in August, after China’s property counter rose for the first time in four months. Opportunistic investors likely took a bet on the region’s oversold counters despite lingering pressure on China’s real estate sector, seeing light at the end of the regulatory tunnel as the scope for further substantial tightening narrows. Market expectations of a new rule to cap the land price premium at 15% also boosted confidence in the sector, which if implemented would cut developers’ cost of land purchases. However, Hong Kong counter did not fare as well, slumping by the most in the region. Thailand stocks rallied to lead the region’s gains after the government announced it will ease restrictions in Bangkok as well as other provinces next month, with infections and mortality rates falling as vaccinations picked up speed.

REITs

The GPR/APREA Composite REIT Index rose for a ninth consecutive month in August, gaining 1.0% to take the index to a new peak. This was mainly on the back of Australian REITs, which clocked the region’s strongest performance as the strength of its property market in recent months shored up valuations. However, the region’s other major REIT markets ended August mostly lacklustre, with those in Singapore falling 2.2% to lead the region’s declines. Defensive sectors stood out with Industrial, Healthcare and Residential REITs outperforming.

Meanwhile, Singapore is seeing heightened M&A activity, reinforcing a consolidation trend in the region. Hong Kong’s ESR Cayman has offered US$5.2 billion for the entire share capital of Singapore-based ARA Asset Management for US$5.2 billion, in a move that will create the region’s biggest and the world’s third-largest listed real estate asset manager. Both companies hold stakes and operate several REITs across the region. Meanwhile, Keppel Corp, a majority stakeholder and manager of Keppel REIT, tabled S$2.2 billion to take SPH, which operates SPH REIT, private.

Aside from the Philippines, REITs are also expanding their presence on the South Korean bourse. The nation debuted ts first REIT of the year – D&D Platform REIT – in August, a multisector REIT managed by conglomerate SK’s real estate arm D&D Investment. SK REITs, which started a book building exercise in the same month is poised for a September debut. The country expects another four listings to occur before the end of the year.

Outlook

Asia Pacific’s economic rebound has clearly taken a hit from the rapid spread of delta variant. As the surge in infection caseloads caught much of the region off guard, governments in most countries are switching tack from a zero Covid strategy, which has grown increasingly untenable in the face of the fast-moving delta variant. In an evolving battle with the pandemic, authorities are focusing on targeting a threshold vaccination rate that will allow a transition to an endemic stage of the pandemic and end the cycle of restrictions. However, the region’s REITs have remained resilient despite the uncertainty. With a Fed taper likely to precede any rate lift, the inability of the central bank to provide a clear timing signals that rates will remain lower for longer, which will continue to sustain interest in dividend plays. REITs has also remained immune to China’s regulatory wrath. The crackdown has not resulted in value destruction for China REIT proxies, which remained positive in August and has so far returned 4.5% this year. Logistics and industrial property REITs that were part of China’s first batch of nine REITs also rose through August.

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