13 December 2022

Money and Me: Is 2023 the year of recovery for S-REITs?

As we wrap up 2022, who are the S-REITs winners and losers coming out of this year’s market turbulence? Find out the answers with Dan Koh and Zia-ul Raushan as they invite Kenny Loh, REIT Specialist and Independent Financial Advisor to share how he thinks S-REITs have performed so far. 

They also discuss the opportunities and risks that 2023 presents for this industry and the sectors that stand to benefit the most from China’s reopening of its economy. 

 

   

Timestamps

0:17 Intro

1:25 Wrap up of the S-REIT performance in 2022 and Kenny’s thoughts of the market now

• REITs still fared better than other asset classes, at -10%, compared to for example the S&P 500 and bonds

 

2:35 Winners & Losers of this year S-REITs

• No clear winner, but Hospitality Trusts fared better than the other sectors
• Most REITs suffered losses, except CDL and Far East Hospitality Trusts with single digit gains.
• Manulife US REIT dropped -50%, Digital Core REIT -47% and Prime US REIT -45%. Worst performing sector this year is the US Commercial Office sector.

 

3:27 S-REIT market outlook in 2023. With recession looming, what does a recession mean for S-REITs?

• A US Recession does not mean a recession in Singapore.
• S-REITs may not be impacted as a whole. It depends on S-REITs with portfolio presence in affected countries (e.g. a US recession will affect S-REITs with US presence).
• Also dependent on the sector

 

5:09 Fed Fund rates poised to reach 5% next year. Is the slowing down of the rate hike good for S-REITs?

• Good for S-REITs. The rapid rate hikes this year are too uncertain. A slowing down gives more predictability and visibility for REITs.

 

6:41 Do you think S-REITs factored in additional rate hikes in their share price valuation?

• Yes, looks like it has factored in a Fed Fund 5% rate. The recent lowering of government bond yields has increased yield spread.

 

7:25 Any indication of how S-REITs are to perform next year?

• Most REITs are healthy, but some REITs have ‘warning signs’, for example high gearing ratio REITs like ARA Hospitality Trust or low ICR.

 

8:31 8% GST Rate Hike: What impact will it have on S-REITs?

• There should be low/minimal impact. Mainly affects local consumption in Singapore. Especially for S-REITs with overseas exposure, they will not be impacted.

 

9:05 Which S-REITs can tide us through a potential recession in 2023?

3 Criteria for me:

• Track Record of increasing NAV/Unit and DPU growth
• Low Gearing Ratio and healthy ICR
• Has a well-diversified portfolio

 

10:24 What should we watch out for? Any sectors to avoid?

• No sectors to avoid, individual REITs’ performance is much more important
• Poor performing REITs (especially even in good economic conditions) may perform even worse
• High Gearing Ratio and low ICR can cause debt refinancing issues for REITs

 

11:54 China has announced the easing of COVID-zero measures. What effect will this have on S-REITs?

• Expect ‘revenge travelling and spending’ of Chinese Tourists
• Mainland China occupied No.1 spot in Tourism Receipts in Singapore in 2019
• 54% of their budget goes to shopping and 15% in accommodation
• Benefits the Retail and Hospitality Sector

 

13:26 To what extent will China’s reopening offset the global slowdown and on Singapore’s economy?

 

14:37 What should we be aware of when adding S-REITs with China exposure to their portfolios?

• China has gone through debt crises in the past 2 years, giving REITs headwinds when refinancing due to increased difficulty in acquiring favorable loans 
• Healthy Balance Sheets are very important

 

15:57 Will 2023 be the year of recovery for S-REITs?

• Yes, Interest Rates should be peaking in the next year.
• However, 2 Risks:
  • Further increases in Interest Rates (maybe above 6-7% and beyond) may cause another S-REIT market crash due to reasons
  • S-REITs may perform badly if there were to be a severe recession

 

17:00 What is your approach when investing in S-REITs and any tips?

• No one can predict the market and the macro-environment. Don’t worry about what we cannot control.
• Focus on your own Financial Objectives.
• Accumulate in stages
• Ensure a Diversified Portfolio!

 

17:58 Outro

Note: The above analysis are my own personal views and are NOT buy or sell recommendations. Investors who would like to leverage my extensive research and years of Singapore REIT investing experience can approach me separately for a REIT Portfolio Consultation.

 

Listen to his previous market outlook interviews here:

2022

• Money & Me: What happens after the recent S-REIT crash? (November 2022)
• Money & Me: Further Interest Rate Hikes, FHT’s failed Privatization bid (September 2022)
• Money & Me: Q3 2022 SREIT winners (August 2022)
• Money and Me: REIT picking in an inflationary environment (July 2022)
• Money and Me: Are Hospitality REITs the clear way to play the reopening trade in Singapore? (June 2022)
• Money and Me: Can S-REITs maintain its upswing from Q1? (May 2022)
• Money & Me: The case for being bullish on S-REITs amid the Ukraine crisis (March 2022)
• Money & Me: Optimism for S-REIT’s given earnings signals and mapping the possibilities for shareholders in the Mapletree merger (February 2022)
• Money & Me: Mapletree merger, growth in commercial S-Reits and the potential return of Reit IPOs in 2022 (January 2022)

2021

• Money & Me: First Reit, CapitaLand, Daiwa, Digital Core Reit and the best of the S-Reit pivots (December 2021)
• Money and Me: VTL’s and hospitality and retail, a new Reit ETF and Making sense of offers for SPH (November 2021)
• Money and Me: Who benefits from the ESR – ARA Logos Logistics Trust merger? (October 2021)
• Money and Me: China’s Evergrande Group property and the spillover in the property market, breaking down what CapitaLand Invest means for the investor and global REITs to watch (September 2021)
• Money and Me: Are retail and hospitality aggressive plays given the pace of reopening? (August 2021)
• Money and Me: Which REITs have seen a limited impact on occupancy during COVID? (July 2021)
• Money and Me: An overview of the REIT performance (June 2021)
• Money and Me: S-REIT’s: which are most likely and which least likely to be affected by new social restrictions? (May 2021)
• Money and Me: What’s the link between bond yields and S-REITs? (April 2021)

2020

• Money and Me: REITS that did well in 2020 (December 2020)
• Money and Me: An overview of S-REITS, value rotations and REITS paying out higher dividends (November 2020)
• Money and Me: Yield Generating Asset Classes (October 2020)
• Money and Me: The REIT outlook within and beyond Singapore (August 2020)
• Money and Me: Ugly Duckling Earnings turning into Beautiful S- Reit swans? (July 2020)
• Money and Me: V for S-REITs? (June 2020)
• Money and Me: Will revenge spending help REITs? (May 2020)
• Money and Me: What REITs to Look out for? (April 2020)
• Money and Me: Crazy REIT Sales (March 2020)

Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement