Why SREITs?
Stable and High Yield:
SREITs offers a yield of 4 to 7%, higher than deposit rates, broad equity market dividend yield, as well as REITs in major markets
Lower Volatility and Correlation:
SREITs have a moderate correlation to both stocks and bonds, and at lower volatility
Hedge against inflation:
Inflation leads to higher rents, which is positive for SREITs
Diversification Benefits:
SREITs offer exposure to real estate, across a wide range of sub-sectors and geography.
Tax Benefits:
Individual SREIT ETF investors enjoy a tax-exempt distribution on taxable income *
Why Now?
Peaking Interest Rates:
Interest rates are peaking as inflation is easing, and the next move is likely rate cuts. SREITs’ cost of debt is closer to market rates and the erosion of distributions will soon fade. SGD and overseas income stabilizing as inflation eases
Utilities and wage costs easing
Strong rent reversions across all sub-sectors:
High single digits to teens rent reversions underpin income
Singapore supply and demand well balanced, and economic growth is troughing
SREITs’ gearing stable with less risk of equity raising vs GFC on accretive divestments
What Risks?
Recession:
A soft landing is the base case, but in the event of a hard landing, SREITs are better insulated and priced than other REIT markets given the reasons listed on above in “Why Now?”
Equity Raisings:
Gearing at 39% is comfortable, and more so given the proposed higher gearing limit. Some SREITs may want to retain the optionality to increase debt headroom and may raise equity closer to book value.
Source: Shorea Advisors, Bloomberg, past performance is not indicative of future performance
$CSOP S-REITs INDEX ETF(SRT.SI)$ * Tax exemption may not be applicable to all investors, refer to the prospectus for the full details. Investors should consult their own tax advisers concerning the tax treatment in their particular situation.
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