• S-REITs demonstrated resiliency amidst the backdrop of rising inflation and a rate hike cycle. The iEdge S-REIT Index posted +1.3% total returns in 1Q22, outperforming the average -4.9% across global REIT hubs.
   
• Despite rising rates, S-REITs average dividend yield of 6.3% still offer around 400bps spread over Singapore’s 10Y SGS bond yields. Debt levels remain controlled with sector average gearing ratio of c.37% and an average 75% of their borrowings pegged at fixed rates.  
   
• The top performing S-REITs and property trusts are mainly from the hospitality and office sub-segments. Singapore’s re-opening and CBD Grade A office rental momentum were key drivers for price performances.

SREITs resilient in the near-term with controlled debt levels and relative higher dividend yields

1Q22 global equity markets performances were governed by geopolitical tensions, a rate hike cycle in US and rising inflation. Given REITs’ general sensitivity to interest rates changes, global REITs markets were also impacted. The FTSE EPRA Nareit Developed Index posted a 3.8% decline in the quarter. Major REIT benchmarks in Australia, Japan, Hong Kong and US posted -4.9% average total returns in the same period. The S-REITs sector was a notable outperformer and demonstrated resiliency, despite near-term macro headwinds, with the iEdge S-REIT Index returning 1.3%.

Despite the backdrop of increasing rates (where Singapore Government Securities 10Y bond yields increased 64bps on a year-to-date basis), S-REITs with the sector average dividend yield of 6.3% (as of end February ’22), are still offering a higher spread of around 400bps. Further, the sector appears to have controlled debt levels, with an average gearing ratio (total debt/total assets) of c. 37%, lower than the regulatory limit of 50%. The sector has also on average secured 75% of their borrowings on fixed rates.

According to Beansprout (an independent research firm), Singapore’s REIT benchmark generated positive returns in previous episodes of interest rate increases: 25.8% total return in (June ’04 to 2006) and 11.9% total return (December ’15 to December ’16).

Top performing S-REITs & Property Trusts in 1Q22 averaged +14.1% total returns

The top performing S-REITs and property trusts in the recently concluded quarter are mainly from the hospitality and office sub-segments, with the top five performing names averaging +14.1% total returns (see table below), outperforming the STI’s +9.6%.

Two drivers that potentially drove the sub-segments were:

• Reopening theme. Singapore’s announcement on decisive reductions to safe management measures and cross-border travel requirements, in line with significant relaxing of containment measures seen across ASEAN. This may potentially drive increased demand in retail and travel.
   
• Momentum in office rental. Grade A office rents in Singapore’s CBD posting highest pace of quarterly growth since 2Q21 (+2.3% YoY in 1Q22), marking the third consecutive quarter of accelerated growth, according to data from JLL Singapore.

Source: Bloomberg, SGX

Note: Dividend yield and gearing ratio extracted from March edition of SGX SREITs & Property Trusts Chartbook. Market capitalization as of 31 March 2022