APAC REITs in a rising rate environment

Fed’s rate

  • On the 16th of March, Fed chair Jerome Powell mentioned the US economy is very strong and well-positioned to handle a tighter monetary policy, following a decision to hike rates by 25bps. Despite its hawkish stance, the Fed lowered its year-end GDP growth expectation from 4% to 2.8% and increased its inflation expectation from 2.7% to 4.1%.
  • The current projection for the Fed fund rate ranges from 2.5% to 2.75% by the end of 2022. This is aligned with the market consensus that policymakers will step up to combat rising inflation. However, geopolitical tensions are likely to create further upward inflationary pressure, weighing on economic activity.
  • The FOMC is also expecting to begin reducing its balance sheet in the coming meeting (likely in May).

Source: https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Impact of rate hikes on APAC REITs

While consensus is that rising interest rates spell bad news for real estate, history has shown that rising interest rates and higher inflation are driven by economic growth is a net positive for physical assets. In turn, this creates a favorable backdrop for real estate and real estate securities. This is because, unlike fixed income and many other yield-producing assets, real estate retains economic sensitivity and pricing power.

During the last US interest rate hike cycle from December 2015 to December 2018, Asia REITs registered a total return of 43.3% as measured by FTSE EPRA/NAREIT Asia ex-Japan Index.

Source: Manulife, Bloomberg as of 31 December 2021

APAC REITs Outlook

Looking ahead, there are more reasons to be optimistic about this sector. Economic risks as a result of the pandemic are likely to fade as the global vaccination achieved higher rates. Key markets, like Singapore and Australia, have achieved high vaccination rates and are beginning to reopen their borders. The 2022 market is expected to continue to be robust, with rental prices holding up or recovering across all sub-segments such as Office, Retail, Industrial, Logistics, and Hospitality.

We have reasons to believe the benefits of an economic reopening would outweigh the impact of the projected interest rate hikes. REITs still offer much higher yields over fixed-income investments even after factoring in many rounds of rate hikes.

Source: Manulife, Bloomberg, as of 29th Dec 2021

Analyzing REITs

Not all REITs are made equal. Other than analyzing the macro factors to choose the right sub-segments, some REITs are fundamentally stronger (or weaker) than their peers. Hence, it is important to dive deeper into the fundamentals to identify quality REITs. Here are some quantitative and qualitative factors you may consider:

Quantitative factors

  • Valuation

Net Asset Value (NAV) is one of the best ways to take as a reference point for the valuation of the company. NAV is the estimate of the market value of its total assets minus the value of all liabilities. When NAV is divided by the number of outstanding units, the net asset value per share is a useful guideline to determine the appropriate level of the unit price.

  • Distribution Per Unit (DPU) and current yield

The current yield is expressed in percentage by taking the REITs’ annual distribution divided by its current unit price. Hence, investing at too high a price will translate to a lower current yield which will not be attractive for investors.

A good track record of stable, increasing DPU and earnings growth is an indication of good REITs.

  • Weighted average lease expiry (WALE)

One of the risks of managing properties’ portfolios is the high percentage of vacancy. When a property is vacant for some time, income and distribution to the shareholders might be affected.

Qualitative factors

  • Growth Drivers

Rental outlook and occupancy trends directly impact the net property income of REITs. Usually, a strong sponsor will provide a stronger pipeline of future property injections and bargaining power.

  • Quality of Assets

Physical location (proximity to prime area or infrastructure) and the attractiveness of the properties (cleanliness and freshness) can draw in larger crowds, which in turn command higher rentals.

  • Profile of Tenants

Quality and quantity of tenants and their mix are important factors too. A well-diversified customer base can help to reduce the concentration risk of REITs, especially during an economic downturn.

Investing in APAC REITs through Mutual Fund and ETF

If you find picking individual REITs and monitoring their performance from time to time is too taxing, you may consider investing via mutual funds or ETFs. These instruments allow investors to own a portfolio of REITs in different sectors and regions, achieving instant diversification. They are also professionally managed by fund managers who will select and rebalance the portfolio, handling corporate actions on behalf of the investors. Mutual funds and ETFs are perfect options for investors who are new or time-starved to do their investments.


  • UOB APAC Green REIT ETF aims to replicate and track as closely as iEdge-UOB APAC Yield Focus Green Index
  • The index covers 50 higher-yielding REITs listed across the APAC region that display relatively better environmental performance and attributes based on GRESB’s real estate assessment.
  • The index has achieved a 10-year annualized Net Total Return of 9.19%, a comparable performance to a broader APAC REITs Index.
  • The ETF aims for quarterly distributions of up to 4% per annum

For more information on UOB APAC Green REIT, please visit https://www.uobam.com.sg/sustainability/solutions/uob-apac-green-reit-etf.page

Manulife Global Fund -Asia Pacific REIT Fund

  • The fund aims to provide long-term capital appreciation and income generation primarily through investment in real estate investment trusts (“REITs”) in the APAC region.
  • At least 70% of the portfolio invests in APAC REITs for potential stable income and not more than 30% invested in non-REIT real estate securities for potential capital gains
  • The fund balances between secular growth sectors (industrial/data centers) and reopening plays (retail/office/hospitality).
  • The fund aims to distribute dividends monthly and the historical distribution range from 4.5%-5%

For more information on Manulife Global Fund – Asia Pacific REIT Fund, please visit https://www.manulifeam.com.sg/site/income-solutions/ap-reits.html

Disclaimer: The information and materials contained in this document are provided strictly for information purposes only and should not be considered an offer, recommendation or solicitation, to deal in or enter into any investments or funds. The information and materials are not to be relied on as investment, legal, tax, regulatory or other advice, as they do not take into account the investment objectives, financial situation or particular needs of any specific investor. Any research or analysis used to derive, or in relation to, the information and materials herein have been procured by UOB Kay Hian for its own use, and may have been acted on for its own purpose. The information and materials herein, including any opinions or forecasts have been obtained from or are based on sources believed by UOB Kay Hian to be reliable, but UOB Kay Hian does not represent or warrant the accuracy, adequacy, timeliness or completeness of the same, and expressly disclaims liability for any errors or omissions. As such, any person acting upon or in reliance of these information and materials does so entirely at his or her own risk. Past performance is not necessarily indicative of future performance. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are [intended only to illustrate hypothetical results and) not necessarily indicative of, and may differ from, actual events, performance or results. No warranty whatsoever, expressed or implied, is given and no liability whatsoever is accepted by UOB Kay Hian or its affiliates, for any loss to anyone, arising directly or indirectly, from the use of this document or  any action or omission made in reliance of any information, opinion or projection contained herein. This document is not directed to or intended for distribution to or use by any person or any entity located in a jurisdiction where it would be contrary to applicable law or otherwise trigger a financial services licensing requirement.  The information and materials herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others for any purpose. UOB Kay Hian reserves the right to make changes to the information and materials, including any opinions or forecasts expressed herein at any time, without notice.

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