3 January 2023
Money and Me: S-REITs’ 2023 outlook
Which SREITs stand to become beneficiaries of investors seeking resilient yield and growth opportunities in a high interest rate environment? And with China taking a major step towards reopening its borders, is it finally time to stock up on companies with high exposure to the Chinese market?
Start your year right with Michelle Martin as she speaks to Kenny Loh, REIT Specialist and Independent Financial Advisor about his thoughts on the performance of SREITs in 2023 and some sectors to avoid during this period of volatility.
1:45 JP Morgan’s cautious outlook for Singapore REITs, expecting declines in DPU and economic slowdown weighing on share price performance. What are your thoughts? Do you agree?
- Yes, I agree. But not all REITs will be affected to the same extent. It depends on individual REIT’s performance and their management.
- However, a severe recession and/or high Fed Fund Rates may affect REIT’s performance more negatively
3:52 Which REIT sectors do you think offer resilience?
- Industrial Sector. WALE is comparatively higher and has delivered consistent DPU for the past few quarters. Also is much harder for Industrial Sector tenants to ‘move out’
- Most vulnerable: I think the US Commercial Office Sector. For Example, Manulife US REIT announced a ~10% drop in portfolio valuation.
- WFH trend still exists, therefore still low occupancy. Valuers are using a higher discount rate due to the higher Fed Fund Rate.
6:01 Many expect Fed Fund Rates to go over 5%. Which REITs could be attractive for investors looking for ‘safe harbours’?
- I think 2 Sectors: Hospitality and Retail, due to the China reopening barring any new COVID variants. Chinese travelers embarking on ‘revenge spending and revenge traveling’.
7:10 Do you think Rate Hikes will influence share price movement of S-REITs, and if so, how much?
- S-REITs have already been priced in a Terminal Rate of about 5%.
- But not a recession. We do not know if we will enter a severe recession, and will REITs’ bottom lines be affected.
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.
8:26 Raising GST to 8% and then 9%: How do you think this will affect S-REIT investors?
- I don’t think there’ll be any impact.
- GST hike only affects local consumption in Singapore. Many REITs have overseas presence; these REITs shouldn’t see any impact.
- Also, many travelers (e.g. Chinese tourists embarking on revenge traveling) won’t bother about this 1% GST hike.
- For the tenant side, 1% won’t move tenants away. Too much of a hassle
10:21 China’s reopening: China was Singapore’s largest source of inbound tourism. Is it time to look at S-REITs with China exposure?
- We should be selective and careful.
- Generally, Singapore REITs with China Exposure have poor balance sheets.
- Also potentially increased difficulty faced by S-REITs in refinancing due to debt crises in China. E.g., EC World REIT in 2022
12:10 EC World REIT has announced divesting of 2 assets in October 2022. With China reversing its COVID policies, what does this mean for EC World?
- The challenge for EC World REIT is debt management.
- 100% of its debt is secured, also they have a very short debt maturity period.
- Unlikely to divest at a good price. But they have no choice
14:45 SPH REIT has been renamed to Paragon REIT. What does this mean for Paragon REIT?
- Paragon sounds more ‘atas’, SPH feels older in my opinion.
- 3 Possibilities, how I look at it:
- 1. Acquisitions should continue, for example Seletar Mall in the pipeline. However, it is not easy in this current high interest rate environment.
- 2. Mapletree has a stake in Cascaden Peak (Sponsor of Paragon REIT). MPACT also has a very similar investment mandate of Asia-Pacific Retail/Office properties; I can see a potential merger on the horizon.
- 3. Acquired by Link REIT? Link REIT are expanding into Singapore.
18:21 Outlook on S-REITs in 2023?
- Many opportunities in the S-REIT space! Most REITs are undervalued right now (according to Price/NAV value)
- Rising interest rates will dampen portfolio valuations
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:
- Money & Me: Is 2023 the year of recovery for S-REITs? (December 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)
- 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)
- 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.