On the back of rising interest rates and economic uncertainties globally, Singapore REITs (and globally-listed REITs) have lost some sheen recently. To add insult to injury, REIT investors in Singapore can compare their meagre returns against the very strong residential property price appreciation in Singapore.
Singapore REITs Delivered A Total Return Of -10.7% In 2022
S-REITs investors lost 10.7% in 2022, even after accounting for dividends from their REIT investments. According to the Singapore Exchange (SGX), Singapore REITs pay an average annual dividend of 5.0%.
In contrast, those who invested in Singapore’s Straits Times Index (STI) would have earned a positive 8.4% return (including its 4.1% dividend yield) in 2022.
While it looks like Singapore REITs suffered a poor year, they actually held up relatively well in the global REIT market. For example, REITs in Australia fell 20.4%, while Hong Kong and US REITs plunged 23.7% and 24.5% respectively. Comparatively, Japan REITs performed slightly better – dipping just 4.8%.
|REITs||Total Return in 2022|
|Tokyo SE REIT Index (Japan)||-4.8%|
|FTSE ST REIT Index (Singapore)||-10.7%|
|ASX 200 A-REIT Index (Australia)||-20.4%|
|Hang Seng REIT Index (Hong Kong)||-23.7%|
|MSCI US REIT Index (United States)||-24.3%|
REIT investors, especially those who may have chosen REITs over physical property investments, may also feel aggrieved – given the buoyant Singapore residential property market. The URA estimates that private residential property prices rose 8.4% in 2022, after an admirable 10.6% gain in 2021. This do not take rents into consideration either. On the other hand, Singapore REITs dropped 10.7% in 2022, and only gained 5.4% in 2021 – inclusive of dividends.
Best & Worst Singapore REITs In 2022
There are 42 REITs and Property Trusts listed in Singapore, with a combined market capitalisation of nearly $100 billion. Logically, different types of REITs would deliver very different results, especially when looking at the sectors their properties cater to.
|REITs Sectors||Share of Singapore’s REIT Market||Total Return in 2022|
The biggest losers in the Singapore REIT market were specialised REITs and office REITs – dipping over 30%. Hospitality REITs were the best performers – nearly breaking even during the year. Other REITs mainly delivered a negative return in the mid-teen range.
These returns were relatively logical. Office properties were badly hit work-from-home practices became a mainstay for businesses. Specialised REITs, comprising the two data centre REITs, Digital Core REIT and Keppel DC REIT, dipped 51.3% and 28.3% in 2022. In contrast, the widespread re-opening of borders resulted in the better performance of properties in the hospitality sector.
Correspondingly, the best-performing individual REIT counters were mainly in hospitality, alongside other REITs that were able to perform strongly. Impressively, all delivered positive returns in 2022.
|Best Performing REITs||Total Return in 2022|
|CDL Hospitality Trust (SGX: J85)||11.3%|
|Far East Hospitality Trust (SGX: Q5T)||10.4%|
|Capitaland Ascott Trust (SGX: HMN)||6.7%|
|Sabana Industrial REIT (SGX: M1GU)||4.9%|
|CapitaLand Integrated Commercial Trust (CICT) (SGX: C38U)||2.6%|
Four of the best five performing S-REITS were also favourites among institutional investors. The top 5 institutional net buys in 2022 included CapitaLand Integrated Commercial Trust, CapitaLand Ascott Trust, Sabana Industrial REIT, CDL Hospitality Trust and Frasers Hospitality Trust (the only one outside the best 5 performing REITs, delivering -1.2% in 2022.
The worst-performing REITs delivered nearly 40% to 50% negative returns in a 1-year period in 2022. Understandably, they were mainly within the office sector, that was very badly impacted.
|Worst Performing REITs||Total Return in 2022|
|Manulife US REIT (SGX: BTOU)||-52.9%|
|Digital Core REIT (SGX: DCRU)||-51.3%|
|Prime US REIT (SGX: OXMU)||-46.8%|
|Lippo Malls Indonesia Retail Trust (SGX: D5IU)||-39.6%|
|Keppel Pacific Oak US REIT (SGX: CMOU)||-37.9%|
4 of the 5 worst performing REITs had properties that were entirely located in the United States. 3 of them are pure-play office REITs. This points to the general negative sentiments of office properties in the United States.
Read Also: Guide To REIT ETFs In Singapore
How Will S-REITs Perform In 2023?
While REITs performed poorly returns in 2022, investors in Singapore can take comfort that S-REITs were not as negatively impacted as many other global REIT markets. S-REITs dipped 10.7% compared to a negative 20% to 30% returns for REITs in Australia, Hong Kong and the United States. Having Singapore REIT exposure provided some cushion.
We can also see that the different REIT sectors can return vastly different returns. Hospitality REITs delivered near-breakeven returns, while office REITs sank over 30%. Having a diversified portfolio of REITs would help REIT investors. We can invest in a diversified basket of REITs via one of the 5 REIT ETFs listed in Singapore.
This also shows that if we can pick out sectors that stand to benefit from macroeconomic trends, we may be able to benefit as well. However, picking the wrong REITs can lead to painful losses.
Next, we also have to consider headwinds in the REITs sector. Signs point to interest rate hikes tapering. This may sound positive, but we must understand that a smaller interest rate hike is still a hike – which may continue to negatively impact REITs.
Interest rates are also not going to spiral down. The mantra “higher for longer” is making its rounds – and REITs need to be able to cope with higher borrowing costs. This may potentially affect REITs that have higher borrowings, especially those nearing the 50% leverage limit.
Given higher interest rates, that will stay high, it’s hard to imagine REITs outperforming expectations in 2023. One positive that S-REIT investors can take is that dividend income is looking stable. From the REITs that have announced their results at the tail-end of January and early-February, there have been some green shoots, with positive outcomes.
Income from a REIT portfolio can be ploughed back into more REITs investments, or we can use it to invest in other sectors and/or to supplement our daily lifestyle.
In a high interest rate environment, acquiring quality properties with a good return will be tricky. REITs that can deliver organic growth, either through higher rental rates or by asset enhancement initiatives (AEIs) can potentially fare better too.
Get The Latest Bite-sized Investment News, Ideas & Insights
It's free! Don't miss out on the latest financial market movements. FSMOne aims to help investors around the world invest globally and profitably, follow FSMOne’s Telegram for bite-sized finance analyses and exclusive happenings.