Faced with a daunting combination of rising interest rates and declining growth in 2022, investors saw shake-ups in portfolios across all sectors. The Singapore real estate sector, too, was not spared. But in a year awash with red, S-REITS (Singapore-focused real estate investment trusts) managed to outperform its global counterparts, marking it as a standout.
While the benchmark iEdge S-Reit Index saw total returns fall by 12% year-on-year, the FTSE Epra Nareit Global Reits Index saw a steeper decline of close to 25%. Put another way, the local REIT segment outperformed the worldwide average by nearly 100%.
In addition, S-REITs also outperformed many other popular instruments among Singaporean investors. According to the latest edition of the SGX SREITs and Property Trusts Chartbook, S-REITs achieved an average 12-month yield of 7.5%, compared to the STI’s 4%, and the MAS Benchmark’s Government Bond of 3.1%. This is against a core inflation rate of 5.1%.
One of the drivers of the strong performance seen by S-REITs is the continued reopening of Singapore’s borders, directly bringing tailwinds to business and tourism sectors. As a result, S-REITs benefitted from the rise in demand for office and industrial space, commercial facilities, hospitality and retail properties, among others.
While the general trend for 2023 is expected to be one of recovery and growth, lingering macroeconomic uncertainties mean investors should adopt a stance of cautious optimism. It is worthwhile looking at some of the best-performing S-REITs last year to see how they could lead the charge in 2023.
3 Top-Performing S-REITs in 2022
Far East Hospitality Trust
- Total returns (1-year): 14.2%
- Total distribution: 12% increase year-on-year (Q3 2022)
Far East Hospitality Trust (FEHT) stood out as the S-REIT with the highest gain in total returns of 14.2%, signifying improvements both in stock price as well as distributions. In Q3 2022, the trust increased the income available for distribution by 12% over the past year, 12% more year-on-year to investors (S$44 million vs S$38.8 million).
The trust’s main holdings are hotels and serviced residences. In Q3 2022, its hotels portfolio saw massive increases in RevPAR (101.9%) as well as average daily rate (107.6%). This was despite average occupancy seeing a slight drop of 3.1 percentage points, proving the pedigree of the properties held.
Meanwhile, the trust’s serviced residences portfolio saw growth in revenue per available unit (66.7%) and average daily rate (32.4%), on the back of an 18.6 percentage point increase in average occupancy, compared to Q3 2021.
Outlook for 2023
As per Q3 2022’s earnings report, FEHT derives nearly 70% of its revenue from corporate travel. This is noteworthy as the sector is widely slated to see continued growth throughout 2023 and 2024 as the MICE and events segment make a long-awaited recovery.
Other favourable developments include Singapore’s continued ability to attract overseas investment; in 2021, fixed asset investments hit S$11.8 billion, exceeding the S$10 billion target set by the Economic Development Board for the year.
These factors are expected to drive demand for accommodation from corporate travellers and project groups, creating a beneficial backdrop for FEHT in 2023.
CDL Hospitality Trust
- Total returns (1-year): 9.7%
- Total distribution: 68.4% increase year-on-year (H1 2022)
CDL Hospitality Trust (CDL HTrust)) emerged as one of the best performing S-REIT in 2022. The stock achieved an impressive 1-year total return of 9.7%, with an increase of over 68% in total distribution compared to a year ago. Distribution-per-share climbed to 2.04 cents, up from 1.22 cents a year prior — a healthy 67.2% rise.
CDL HTrust surged ahead on strong results generated by its core Singapore hotels portfolio. Occupancy reached 88.1% in Q3 2022, with RevPAR (revenue per available room) spiking 163% over Q3 2021.
Positive results were also reported among the trust’s other holdings, although improvements were generally moderate. RevPAR in Q3 2022 increased in Australia (233.5%), Maldives (26.3%), Japan (49.1%) and U.K. (24.9%).
Outlook for 2023
So far, Singapore’s post-pandemic recovery has been stronger than expected, and CDL HTrust is well-positioned to benefit from the uptrend.
There is further upside expected to be seen from the return of MICE and major events, as well as the return of corporate short-term travellers.
Pent-up demand from Chinese tourists is also expected to foster further growth potential.
CapitaLand Integrated Commercial Trust
- Total returns (1-year): 3.1%
- Total distribution: 3.39% increase year-on-year (H1 2022)
CapitaLand Integrated Commercial Trust (CICT) is a long-standing favourite among S-REIT investors, so it’s not surprising to see it claim its spot on the list of top performers for 2022.
The REIT saw a 3.1% rise in 1-year total returns along with a 3.39% year-on-year increase in total distribution as at H1 2022. True, these modest numbers may not be as exciting compared to the other two entries, but CICT nonetheless has plenty to offer.
For one, it is the largest proxy for Singapore’s vibrant commercial real estate sector, with holdings in retail, office and integrated developments — including some of the island’s most iconic commercial properties.
It is also among the most well-diversified REITs out there, with no single tenant contributing more than 5.1% of total gross revenue.
As such, investors can gain broad, well-balanced access to many of Singapore’s most attractive commercial developments just by holding shares of CITC.
Outlook for 2023
While CITC is structured to be an easy pick for most investors, it is its continued steady performance that convinces many to stay. And with Singapore expected to continue charting a strong post-pandemic recovery, CITC is poised to reap the benefits of increased demand.
Two particularly bright spots are the office and retail segments. For the former, demand from tech expansions, flexi-work operators and non-banking financial companies — in tandem with limited new office space supply — are expected to drive positive rental growth throughout 2023.
Meanwhile, analysts predict that retail rents will continue to recover as 2023 progresses, primarily driven by demand from F&B operators.
How to Invest in S-REITs
Looking to add S-REITs to your portfolio for long-term growth and income generation? You’ll be glad to know that investing in S-REITs is really quite simple.
All you have to do is to sign up with an online brokerage that offers the S-REITs you want to hold. You can choose to buy direct shares of individual S-REITs, or opt to invest in S-REIT ETFs which gives you access to a basket of different S-REITs at once.
S-REITs are just like shares — you can buy, sell or hold them as you please. However, note that S-REITs generally require a longer investing timeline to unlock their true worth.
Before you embark on your S-REIT investment journey, read our guide to the best online brokerages in Singapore to help you narrow down your starting choices.
Cover image source: Unsplash