High-dividend Singapore REITs are back in the spotlight as COVID-19 restrictions ease and new economy sectors emerge.
The advent of the COVID-19 pandemic left in its wake a period marked by uncertainty, lockdown measures and a halt on international travel. As a result, Singapore Real Estate Investment Trusts – otherwise known as Singapore REITs or S-REITs – took a sharp tumble in 2020.
Despite recovering somewhat the following year, S-REITs continued to underperform in 2021 amidst fears of inflation and interest rate hikes along with prolonged COVID-19 restrictions. Many had to adapt and turn to new sectors to attain growth.
Now fast forward to 2022. Globally, people are learning to live with COVID-19. Singapore’s economy is recovering as the pandemic becomes endemic; safe management measures are relaxed, WFH regimes are taking a backseat as people head back to the office, and borders are open once more with VTL travel.
How will this affect Singapore REITs and what can investors look forward to in 2022? Find out as we cover the following in this article:
- Is it worth investing in REITs in Singapore?
- Best and worst performing S-REITs in 2021
- Outlook for Singapore REITs in 2022
- How to buy REITs in Singapore
Is it worth investing in Singapore REITs?
Singapore REITs are an attractive option for those looking for a medium- to long-term product that provides stable returns, high dividend yields and the potential to earn capital gains.
In 2021, S-REITs had an average dividend yield of 6.1%. That is approximately 400 basis points (4%) above the yields you would get from Singapore Savings Bond (SSB), and far outweighs the interest from fixed deposits and savings accounts at the banks.
Here’s how Singapore REITs compare to other asset classes:
|Singapore Fixed Deposit Rates||2.3%|
Source: SGX Research
For all its benefits, investing in Singapore REITs does come with its own set of risks. Like stocks, REIT share prices are exposed to market volatility. Singapore REITs’ dividend yields are also dependent on rental income, which can go either way depending on the economy and sectors they are in.
For example, hospitality REITs took a major beating as global travel was put on hiatus due to the pandemic, while industrial REITs proved resilient on the back of increased demand for warehouses buoyed by e-commerce and storage needs.
2021 was also the year that Singapore REITs pivoted into ‘new economy’ sectors such as logistics warehouses, data centres and industrial office spaces for better performance growth.
For a better indicator of what worked and what didn’t, here are the best and worst performing REITs in 2021.
Best and worst performing REITs in 2021
3 best performing Singapore REITs in 2021
|Name||Sector||1 Year Total Returns||Dividend Yield|
|ARA LOGOS Logistics Trust||Industrial||59.1||5.7|
|First Real Estate Investment Trust||Healthcare||56.6||9|
|Starhill Global REIT||Retail||39||6|
ARA LOGOS Logistics Trust (ALOG) tops the list with high returns that can be attributed to new acquisitions in Australia, a total portfolio occupancy rate of 99%, a long weighted average lease expiry (WALE) of 4.4 years, and having secured leases. Pandemic-related restrictions in the REIT’s key markets have also fuelled demand for its industrial spaces.
First REIT has also performed well, thanks to its new 2.0 growth strategy that led to a corporate restructure and foray into a new market with the acquisition of 12 nursing homes in Japan.
Meanwhile, Starhill Global REIT saw an increase in net property income and gross revenues, which were largely due to lower rental rebates and assistance across its properties in Singapore, Australia and Malaysia.
3 worst performing Singapore REITs in 2021
|Name||Sector||1 Year Total Returns||Dividend Yield|
|Dasin Retail Trust||Retail||-48.3||13.5|
|Frasers Hospitality Trust||Hospitality||-9.7|
|CapitaLand China Trust (formerly CapitaLand Retail China Trust)||Diversified||-9.4||6.4|
Dasin Retail Trust remains the worst performing Singapore REIT in 2021 and holds significant liabilities that have affected its performance.
Frasers Hospitality Trust’s results are unsurprising, given the slow recovery of the hospitality segment due to disruptions in the tourism and aviation industries. However, with global economies picking up and travel resuming, this could soon change for the better.
Originally a retail REIT, CapitaLand China Trust has since pivoted into the commercial and industrial sector with its acquisition of four logistics assets and five business park properties in China. Its underperformance is likely due to the lingering effects of COVID-19 on its retail properties, which has affected occupancy and gross revenue.
Outlook for Singapore REITs in 2022 and beyond
One of the key risks for Singapore REITs in 2022 is the uncertainty over US Fed interest rate hikes. For asset-heavy REITs, increased interest rates mean having to refinance and borrow at higher costs.
However, it’s not all doom and gloom for Singapore REITs. Armed with a low average gearing ratio of 37.2%, S-REITs have a better chance of prevailing against interest rate hikes.
Opportunities are also present in sectors such as healthcare and industrial REITs that have turned their focus to new economy assets. These plays look set to continue, as mega-trends such as digitalisation, e-commerce and supply chain resilience continue to drive demand for data centres, logistic warehouses and high specification facilities.
Here are some Singapore REITs to look out for in 2022:
- Digital Core Reit: This pure data centre REIT was Singapore’s largest IPO in 2021. Listing at US$0.88, its share price is now worth US$1.13 (as of 17 February 2022) and its potential for growth remains high.
- Ascott Residence Trust: This hospitality REIT has pivoted to new segments by acquiring purpose-built student accommodation (PBSA) in the US and rental housing properties in Japan, potentially catering to demand for student housing as education institutions open up once again.
- ESR-REIT and ARA LOGOS Logistics Trust: A proposed merger between these two REITs is expected to be completed in 2022. When that happens, the new combined entity – ESR-Logos REIT – will be focusing on new economic sectors.
How to buy REITs in Singapore
If you prefer a more diversified approach, you can also consider investing in a REIT Exchange Traded Fund (ETF), which can be purchased directly from SGX, or invest in a REIT portfolio through certain robo-advisors.
Whichever way you choose, make sure you do your research and purchase a REIT only when it matches your investment objectives!
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