Singapore REITs Are Facing Problems

I like to share my observation with you about Singapore REITs, especially in 2024.

I like to share my observation with you about Singapore REITs.

I’ve also shared this at the REITs Symposium two weekends ago (were you there too?).

I agree, Singapore REITs are facing problems. Why?

  • Singapore REIT shares were down 8% this year.
  • High gearing and higher interest rates have raised REITs’ interest costs. These put pressure on what income investors like to look at – distributions per unit (DPU).
  • Also, Singapore REITs need to refinance expiring debt and renew interest rate swaps soon.
  • Poor share performances were further dragged by Singapore REITs that invest in overseas assets.

The thing is, I would have sold all my Singapore REIT shares today. But I didn’t.

Because here’s what I’ve really observed about Singapore REITs, that not many investors are really talking about:

Singapore REITs 1Q2024 results continued to stay healthy

I’ve said before, Singapore REITs’ positive momentum will kickstart once our economy re-opens from the pandemic – in spite of higher interest rates. This is driven by a stronger occupancy rate.

But more important, a higher industry tailwind that’s lifting all boats. 

Let me explain:

  • Singapore office vacancies continue to fall (now <4%). Grade A office rent is up 1.7% y/y to S$11.90 psf/month.
  • One of the big trends is the healthy demand for big tech and financial giants to set up offices here. For instance, once IOI Central Boulevard Towers is completed, Amazon will take up at least 40% of the committed leases.
  • Industrial rents continue to grow except business parks due to oversupply. Major logistic players are taking up physical spaces here for their e-commerce inventories. Warehouse rent was up 7.9% y/y to S$1.91 psf/mth, followed by factory spaces that are up 4.7% y/y to S$1.77 psf/mth.
  • Then retail rent is recovering, fast. After the pandemic couple years back, I’m seeing more tourists and shoppers returning.
  • In fact, heartland mall rents are growing. But Orchard Road belt rent is growing even faster.
  • Hospitality REITs are mixed. Weaker hospitality REITs that own overseas assets face currency risks. Larger, diversified REITs that own serviced residence and hotels have shown growing revenues per hotel rooms (RevPAU).

(Data sourced from CBRE and Goldman Sachs Investment Research)

Here’s another thing I’ve observed. Singapore REITs are selling down their assets to lower gearing, recycle capital.

In 2023, there were more than S$2 billion of assets sold by Singapore REITs. That’s a huge pace of asset sale:

As Singapore REIT’s manage their debt levels by “streamlining” their assets. 

This also allows them to better focus on improving rent on their best properties.

Critical signs I would watch for in Singapore REITs

I’ve invested in Singapore REITs for years. What critical signs would I look for?

  1. Stable interest rates
  2. Positive rental reversions
  3. Stable occupancy rates
  4. Singapore’s consumption spending (economic outlook)

The thing is, what’s also interesting is based on past cycles, every time government yield “trades flat”, Singapore EIT performance and DPU improves. 

This is probably because REITs’ DPU can meaningfully adjust as interest rates stay stable.

This also means it’s crucial to diversify our stock portfolio.

I didn’t have much time, as I was sharing so much data and trends. But I ended off my sharing with a Singapore hospitality REIT that I like. 

Can you guess what is it?

Sometimes, investing can be simple. 

Willie Keng, CFA

Founder, Dividend Titan

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Vince
20 days ago

CapitaLand Ascott Trust?

Deez
Deez
5 days ago

which reit did u share?

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