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

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

2021

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