Friday, December 6, 2013

How will S-Reits perform in 2014?

With just over less than a month to go, it seems that investors favorite, S-Reits will end up its performance in 2013 in negative territory.

To date in 2013, S-Reits have returned -7.7% price return YTD, underperforming the STI ETF by 6.4%. This is in stark contrast to the stellar performance it has given investors in 2012, registering a 41% price increase in previous year.

So how will S-Reits perform in 2014? With impending QE fears on the rise, it looks like many investors and analysts are not favoring and considering S-Reits as part of their portfolio for 2014. If you are still in the favor for S-Reits like me, then it is important to be selective on our picks.

Office Sectors

Analysts have been most bullish about the office sectors in particular as they have cited office rents in Singapore to have bottomed and rental growth to resume in 2014 and 2015 by about 6%.

CapitaComm (CCT) and FraserComm (FCOT) are two examples of S-Reits which has exposure to Grade A and Grade B offices respectively in Singapore.

For instance, in Q3 2013, CCT's average office rents rose 0.9% QoQ to $8.03/month and is also the fifth consecutive quarterly increase. It seems that as economic outlook are getting stronger in Singapore, the rents price would follow as well.

Retail Sectors

I suspect retail sectors are going to lag and underperform in 2014 due to the many available new malls built in Singapore recently. With the addition of the recent Bedok Malls and Westgate (with SPH's Seletar Malls due in 2014), the competition for higher rental prices will be harder to achieve with occupany rate another factors management have to take a closer look at.

Hospitality Sectors

I like the hospitality sectors as a longer theme play for Singapore tourism outlook on the rise. This perhaps explains why I do have a considerable amount of hospitality Reits in my portfolio. However, the RevPar for the hospitality sectors are on a downtrend and many companies are facing competition from the increase in supply of hotel room in Singapore. This sector nevertheless gives a good yield and I will be adding only if they cross over my 7% target.

Healthcare Sectors

With Singapore having the least number of baby born across the other 209 countries (baby born ratio is 0.93), it seems almost inevitable that Singapore, together with Japan are going to have an ageing population in the near future. Given its defensive nature, the healthcare sectors hardly gives any decent yield. And with rising interest rates impending, it could costs some downside risks for the sectors.

Industrial Sectors

Industrial sectors is the only sector missing from my portfolio.

It is quite ironic that Ascendas remains my 2nd top pick list but yet I am not feeling great about the industrial sectors in general. Although manufacturing remains an important economic pillar of Singapore's 2014 growth, inflationary cost pressures and supply competition will eat up rental profits for the sectors. But if the price remains right, I will still be happy to add them into my portfolio.

With that all being said, it looks like S-Reits will once again underperform the index in 2014 as most sectors have their respective worries. So if you are still looking to buy on Reits, you need to be more selective. I still somehow believe that 2014 will present a good opportunity to buy Reits, especially when the Fed finally tapers and the price hit bottom.

So what do you think of the different sectors and which sectors do you think will outperform in 2014?


  1. agree that s-reits will face headwind, and better entry level could present itself next year!

  2. The selling already start long ago. Sell to strength. Dont wait. Buy later cheaper. Do not just say, take action fast.

  3. My strategy for REIT is always buying below NAV, the lower the PB the higher the margin of safety. I doubt we will see them falling like GFC but definitely getting headwinds from FED and correction had started since Jun.

    I am keeping my war chest and waiting patiently. In my view not attractive enough to enter yet.

  4. We should all take care of our plans and ensure that everything is accordingly. Never do anything that might contradict with our plans for our Real Estate Investments. Its important that we follow every step and make sure that it is well placed.