Money and Me: S-REITs’ 2023 outlook

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.

Timestamps

0:17 Intro

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:

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