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The Rise and Potential Rebound of S-REITs: An Opportunity for Investors

CEO Khai Intela
The recent downturn in Singapore REITs (S-REITs) has left investors wondering about the future prospects of this market. While rising interest rates in September and October caused a wave of sell-offs, there are several reasons...


The recent downturn in Singapore REITs (S-REITs) has left investors wondering about the future prospects of this market. While rising interest rates in September and October caused a wave of sell-offs, there are several reasons to believe that a turning point might be in sight for S-REITs in 2024.

What Caused the Sell-off in S-REITs?

S-REITs are known to be sensitive to interest rate movements, and this recent decline is no exception. However, understanding the three main reasons behind this sensitivity can shed light on the potential for a rebound.

Operational Performance Stays Strong

Despite the volatility observed in Q3 2023, the operational performance of S-REITs has remained robust. In the office space sector, Core CBD (Grade A) rents saw a year-on-year increase of 2.2%. The retail sector experienced a significant surge in Q3 2023, with island-wide rents rising 1.4% quarter-on-quarter. The logistics sector remained resilient, with prime rents up 11.7% year-to-date.

Operational Performance Source: Singapore Figures Q3 2023, CBRE

Valuation Looks Attractive

The recent decline in S-REITs has resulted in more attractive valuations for investors. With the price-to-book ratio at a decade low of 0.85X, there is a potential value-buying opportunity in this market.

Attractive Valuation Source: Bloomberg, SGX Securities, data as of 30 September 2023. SGX Research SREITs Property Trusts Chartbook October 2023

Provide Consistent and Attractive Yield

S-REITs continue to provide attractive yields for investors looking to grow their passive income stream. Currently, the average dividend yield for S-REITs stands at 7.7%, offering a higher yield spread of 430 bps above Singapore Government 10Y bond yields at 3.5%. This makes S-REITs a compelling option for those considering alternative investments to SSBs or T-Bills.

Attractive Yield Source: Chartbook: SREITs & Property Trusts, SGX Research, UOBAM, October 2023

The Fed May Be Done with Rate Hikes

The rising interest rates have been a challenge for S-REITs, but the headwind is expected to lessen moving forward. At the November FOMC meeting, the Fed maintained the benchmark rate, indicating a possible end to the rate hike cycle. Market expectations for 2024 suggest a decrease in interest rates, which could create a window of opportunity for S-REITs.

Rate Hikes Source: Bloomberg, FactSet, U.S. Federal Reserve, J.P. Morgan Asset Management. Market expectations are derived from market implied policy rates as of 30/09/23. Federal Reserve projections shown are the median estimates of Federal Open Market Committee (FOMC) participants.Guide to the Markets - Asia. Data reflect most recently available as of 30/09/23.

Syfe REIT+ Portfolio Performance Update

Syfe REIT+ is an optimised portfolio of the 20 most well-known Singapore REITs. Despite the recent sell-off, the performance of the REIT+ portfolio has been resilient compared to the broader S-REITs market. In both 2022 and 2023, the REIT+ portfolio outperformed the benchmark by 1.7% and 1.5% respectively.

Portfolio Performance Source: Total return of Syfe REIT+ (100% REITs) before management fees vs iEdge S-REIT Leaders Index. Performance rebased to 100. Bloomberg, Syfe Research, 31 October 2023

Focus on Quality and Diversification

Considering the near-term outlook for S-REITs and the possibility of the Fed maintaining interest rates, investing in a diversified REIT portfolio like Syfe REIT+ is prudent. A diversified portfolio helps mitigate risks associated with the poor performance of a single REIT subsector and reduces the chance of being overexposed to any one REIT.

For investors looking to accumulate more REITs at attractive prices, adopting a dollar-cost averaging (DCA) strategy is recommended. This approach allows for the purchase of more units during market dips while minimizing the risk of deploying all available capital during further market declines.

In conclusion, despite the recent sell-off, there are several reasons to be optimistic about the future of S-REITs. The strong operational performance, attractive valuations, consistent yields, and the potential end of the rate hike cycle provide a compelling outlook for investors. By focusing on quality, diversification, and adopting a patient approach, investors can position themselves to benefit from the rebound of S-REITs in 2024.

Read More:

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