While Singapore REITs are often well sought after due to the high dividend yields they hand out to shareholders, they are also often criticized for asking the same funds back from shareholders through frequent equity placements and rights issues. This is because Singapore REITs, in order to qualify for their tax transparent status, have to distribute at least 90% of their distributable income to shareholders as dividends. While this results in the high dividend yields offered by Singapore REITs, it also meant that Singapore REITs hardly retain any of their earnings for future capital expenditures and expansions. Thus, when Singapore REITs need funds for asset acquisitions and expansion, they would have to tap the equity markets through secondary share placements and rights issues, which generally dampen the REITs’ share prices.
However, as the Singapore REITs sector matures, alternative ways for REITs to raise funds for asset acquisitions and expansion have also arose. Firstly, the establishment of the perpetual bonds market last year has given REITs an alternative source of funding….
Secondly, Singapore REITs have also recently embarked on asset recycling as an alternative source of funds. We have noticed an increasing number of office and industrial REITs taking advantage of current buoyant property market to divest some of their older property assets (that have little upgrading potential) for a profit. And with the funds raised, they can reinvest it into newer property assets with better potential for upgrading (and raising rentals).