In some cases, REITs have divested their Japanese properties. Mapletree Pan Asia Commercial Trust sold the TS Ikebukuro Building and ABAS Shin-Yokohama Building in 2025. CapitaLand Ascott Trust (CLAS) regularly divests its Japanese properties, saying that they are mature and have limited upside potential. In 2024, CLAS sold Hotel WBF Kitasemba East, Hotel WBF Kitasemba West, Hotel WBF Honmachi and Citadines Karasuma-Gojo Kyoto and Infini Garden above book value, and Citadines Shinjuku Central Tokyo in 2025 at 100% premium to book value. CLAS also regularly acquires Japanese assets. Some may argue this is to increase fees, but CLAS’s managers say that the trust divests assets that have reached their potential and needs to recycle those funds into higher-yielding properties.
In general, a key capital management strategy of S-REITs is to have a “natural” hedge for their overseas portfolios. The REITs match their foreign assets with their foreign liabilities (i.e., foreign-currency debt) as closely as possible. For instance, LTV ratios for Japanese assets are quite high (see Table 1) and all are above the REITs’ regulatory aggregate leverage ceiling of 50%. Hence, if the Japanese yen (JPY) weakens against the Singapore dollar (SGD), the impact on the Japanese portfolio’s LTV is approximately neutral. Of course, the aggregate leverage of S-REITs remains well below 50%, and many S-REITs’ debts are unsecured, supported by income from a pool of assets.
The concern for investors could be that portfolio valuations fall, causing their LTV ratios to rise. Ten-year Japanese government bonds (JGBs) have risen, which could, in turn, influence capitalisation rates and asset values. Meanwhile, the war in Iran has fuelled global inflation, which in turn could prompt the Bank of Japan to raise interest rates at least once this year, says CBRE.
According to CBRE’s 1Q2026 report dated May 5, vacancy in most mature markets, especially for commercial properties in Tokyo, Singapore and Seoul, is expected to remain low throughout 2026, supported by tighter availability and strong domestic demand. Elsewhere, flight-to-quality demand underpinned activity in mature markets, with both Greater Tokyo and Greater Osaka recording strong take-up in new developments for Japan’s logistics sector, CBRE says.
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In an update on May 11, MSCI points out that Japan recorded US$12.2 billion ($15.51 billion) of investment sales in 1Q2026, a 32% y-o-y decline. “However, this reflects a comparison against a record first quarter in 2025 and represents a controlled moderation from its peak. Investor appetite has remained broadly intact, with sustained rental growth across most property types. Retail and seniors housing contributed most to the volume decline, while industrial recorded strong activity. Against a backdrop of rising interest rates, capital values have held firm across each of Japan’s core sectors so far,” MSCI adds.
Investment properties’ values depend on the outlook for net property income, rents, leases, occupancy rates and interest rate trends. Generally, in the absence of price shocks, capitalisation rates and discount rates have moved relatively little.
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JPY-priced Japanese assets in most S-REITs have firmed
Interestingly, for S-REITs, the valuations of their Japanese assets priced in JPY have risen, albeit somewhat sedately in some cases and more briskly in others. Of the 40 S-REITs and trusts — including the hospitality trusts, which are stapled securities, and CapitaLand India Trust, a property trust — around 13 have Japanese properties.
Of these, ParkwayLife (PLife) REIT has around 60 Japanese nursing homes, accounting for around 25.3% of its $2.57 billion of assets. According to PLife REIT’s annual report 2025, all JPY-denominated acquisitions were fully funded by loans in JPY, mitigating the impact of foreign exchange volatility.
“Our policy is to hedge at least 50% (up to 100%) of all financial risks. As at the end of FY2025, approximately 93% of total interest rate exposure was hedged, providing significant protection against rate volatility,” the report adds, referring to the prospect of rising Japanese interest rates.
PLife REIT’s annual report is very transparent. It lists all its JPY debt, the acquisition prices of all its Japanese nursing homes (and other assets), and the end-FY2025 valuations of all its Japanese nursing homes. Of the 60 Japanese nursing homes, only two have a current valuation below their acquisition prices. These two properties have an occupancy of 0% due to legal action against the operator. The other 58 properties’ end-2025 valuations are above their acquisition prices in JPY, with some significantly higher. Hence, their LTV ratios would not have been breached. However, in SGD terms, most of the 60 are below their acquisition price, which is why the LTV in Table 1 appears skewed.
Similarly, Keppel DC REIT’s Tokyo and Chiba (a Tokyo satellite town) data centres are valued at a premium to their acquisition prices. Thus, the skewed LTV ratio is less likely to be a risk. Keppel DC REIT operates in a number of different currencies, including the euro (EUR), the British pound, the Australian dollar and the renminbi (RMB). To keep as natural a hedge as possible, the REIT’s borrowings are in the currency of the country in which the property is located, the REIT’s annual report adds.
Moreover, aggregate leverage levels for both Keppel DC REIT and PLife REIT are well below 40% and the regulatory ceiling of 50%. Keppel DC REIT’s and PLife REIT’s aggregate leverage are 35.1% and 34.2% respectively as at end-March. Keppel DC REIT’s 12-month trailing interest coverage ratio was 7.2 times, while PLife REIT’s ICR was 8.4 times. PLife’s strategy is to keep its aggregate leverage below 40%.
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Interestingly, while most REITs hedge their income for around six to 12 months, PLife REIT has hedged its JPY income to 1QFY2029 (PLife REIT has a December year-end). Income-level hedges are secured till 1Q2029 (JPY) and 1Q2030 (EUR). The rationale is to provide unitholders with long-term visibility into earnings and stability, the REIT says.
Elsewhere, ESR-REIT’s two logistics assets remain valued above their acquisition prices in JPY terms. Its pro forma aggregate leverage, following the sale of the hotel at ESR BizPark @ Changi, after end-December 2025, is 38.5%. The 12-month interest coverage ratio (ICR) is 2.5 times, comfortably above the regulatory floor. Moreover, in FY2025, ESR-REIT’s distributions per unit (DPU) were almost all from operations. ESR-REIT is also very transparent, with its presentation slides showing the LTVs of its Australian and Japanese assets.
REIT managers have acknowledged that their Japanese assets have higher LTV ratios, but have pointed to low JPY rates and natural hedging benefits as strategies. They often reassure investors with covenant buffers and refinancing flexibility, as many REIT portfolios are unsecured. In addition to modest aggregate leverage and comfortable ICRs, REIT managers also cite rent growth, long WALE, high occupancy and staggered debt maturities to reassure unitholders.
The SGD effect
Mali Chivakul, emerging markets economist at Bank J Safra Sarasin, notes: “The strong SGD will be negative for those firms that rely on overseas revenues, such as the REITS. The SGD will likely appreciate further. First, once the war is over and oil prices normalise, the US dollar will likely fall further. Second, we expect inflows into Singapore’s wealth management industry to continue, as the war has likely permanently altered perceptions of security in the Middle East. And third, the Monetary Authority of Singapore (MAS) will likely retain an appreciation bias as inflation will pick up further later in the year, even as oil prices normalise, as higher input costs trickle through the supply chains and food prices pick up due to higher transportation and fertiliser costs.”
She adds that growth concerns could keep the MAS on hold in July as it monitors the war’s second-round effects on inflation. “With our expectation of the Fed staying on hold for the rest of 2026, Singapore’s interest rates should stabilise,” Chivakul adds.
As a result of forex and interest rate volatility over the cycle, REITs and hospitality trusts actively hedge income repatriated to Singapore. For instance, as at March 31, Mapletree Logistics Trust, which derives 29.9% of its gross revenue from Singapore, hedges 75% of its distributable income into SGD for the next 12 months.
CLAS is probably the most global of the S-REITs, with just 18.7% of assets of its $8.9 billion portfolio in Singapore. Its foreign currency risk is from RMB, EUR, Hong Kong dollar, Indonesian rupiah, Korean won and JPY. The EUR is the largest bloc with more than 25% of assets in Europe, followed by the US with 18.3% and Japan at 18.2%.
CLAS’s foreign currency risk management strategies include: entering into foreign currency forward contracts to hedge the foreign currency income from the overseas assets; the use of certain foreign-currency-denominated borrowings to match the capital values of the overseas assets as a natural hedge, whenever possible; and the use of certain foreign-currency-denominated borrowings, which include bank loans and medium term notes, and cross currency interest rate swaps to hedge against the currency risk arising from CLAS’s net investments in certain subsidiaries.
PLife REIT’s forex hedging is admired among investors. It often reports a realised forex gain. In FY2025, the REIT had a realised forex gain of $7.5 million, while in 1QFY2026, the net forex gain was $1.85 million. PLife REIT pays its DPU every half year.
While PLife REIT’s annual report is among the most transparent, top marks in transparency go to CapitaLand Ascendas REIT (CLAR), which has no Japanese assets at all. Its FY2025 presentation slides (see Chart 1) clearly show its investment properties versus the debt used to finance them. Perhaps CLAS (and REITs with a significant overseas footprint) could consider something similar.
