Webinar: Diversifying real estate investments beyond SGX and S-REITs

The Singapore Stock Exchange has been an attractive exchange for many business trusts and Real Estate Investment Trusts (REITs) to list. While Singaporeans can gain exposure to local and regional real estate through Singapore REITs (S-REITs), they are not truly having an international, diversified exposure by limiting themselves to the local bourse.

0:00 Introductions
4:47 Fund Smart new fees announcements, real estate funds on Endowus
9:02 Is the S-REITs space too narrow? Market Overview of Listed RE & REITs 19:41Are listed RE & REITs highly correlated?
25:39:Listed RE and REITS Sector Outlook 2H2021
32:30 With inflation & rising interest rates, why should investors be allocating to RE/REITs?  
39:10 Risk of Real estate investments with REITs
45:19 Why active management beats passive investing for REITs
52:50 How the different real estate fund managers differentiate themselves
1:03:10 Are the funds subjected to 30% withholding taxes if you invest in US properties? ESG on real estate investments
1:10:25 What are your views on Keppel Corporation/Keppel REIT acquiring SPH?

Common questions about REITs and Real Estate Investments

What is a REIT?

REIT stands for Real Estate Investment Trust. This is often a listed fund that owns a pool of income-generating real estate assets. As listed entities, REITs are able to pool the money of many different investors, allowing them to earn dividends from properties that they are unable to own individually.

REITs can be invested in different real estate assets, such as hotels, shopping malls, offices, healthcare and even data centres.

Why do Singapore investors like to invest in REITs?

There are three main reasons why Singapore investors favour investing in REITs over other investments. Firstly, it allows them to own multiple property in their portfolios, with a diversified pool of tenants, with a small investment capital. Compared to renting their own investment property out, REITs allow for more diversified investment, at a smaller investment denomination.

Secondly, REITs generally provides a steady income stream to investors. REITs typically have stable income since most of it is derived from rental income from fixed lease agreements with a specific tenure. REITs in Singapore are also have to distribute at least of their income annually to enjoy tax exemption status.

Thirdly, REITs are perceived to be a safer way to invest as investors perceive it as owning physical assets. Many REITs also have a mandate to invest in specific sectors, such as healthcare and retail, which is perceived to be insulated from economic cycles.

Excerpts from the Webinar:

Is the S-REITs space too narrow? (9:02)

When you compare the Singapore REITs (S-REITs) with other exchanges where there are REITs, you will realise that the market capitalisation of our S-REITs is relatively small. The US REITs market is the largest, follow by Japan then Australia. The Singapore Stock Exchange (SGX) has 42 S-REITs and Property trusts, and 3 REIT ETFs (namely Lion-Phillip S-REIT ETF, Nikko AM-StraitsTrading Asia Ex Japan REIT ETF and Phillip SGX APAC Dividend Leaders REIT ETF. The 3 SGX Listed REIT ETF are narrowly focused on either Asia or Singapore.

There is not many choices that Singapore investors can choose from or use to avoid home bias. It is also important to look at past performance and also historical volatility of different investments.

I have taken 3 different real estate fund solutions that is available on Endowus platform to give you an indication what the performance have been, ending in June 2021. I have also used a REIT ETF available on SGX, and a S-REIT portfolio from a Robo Advisor (they use SGX iEdge S-REIT Leaders Index) as comparison.  

Based on the past performance, it is very clear that the BlackRock, Janus Handerson and the United Asia Fund have outperformed the REIT ETF and the robo advisor REIT solution. The underperformance of the S-REIT is very wide, although you have to pay for slightly higher fund management fees. The volatility of these different options are very similar.

With inflation & rising interest rates, why should investors be allocating to RE/REITs?  (32:20)

Qiuting: Real Estate as an asset, be it listed or private properties, it offers low correlation to other asset classes. It provides diversification benefits, and improves risk-adjusted returns for the investor. The global real estate securities investable universe offers you a liquid exposure of the underlying assets, which tend to be high quality properties. Think about your Vivocity in the Mapletree Commercial Trust (MCT) or your IFC in Hong Kong, these are not assessable to us unless we invest in listed real estate companies or REITs.

Furthermore, lets look at the other sources of reliable yield. Real estate investment are pro-cyclical, and tend to correlate well to economy growth. They work well as inflation hedge as property owners are able to pass on higher costs, such as building management to the tenants. The historical rental income has offered inflation protection and sustainable long term growth above inflation.

Listed real estate companies should be seen as a total returns sector that offers income and growth. This industry is expected to give a dividend of 3% per annum for the investable year, and this dividend yield will grow at mid single digits for the next 3 years. This growth in cash flow has greater certainty relative to other non real estate asset classes. Many of the real estate companies income growth is linked to contractual obligations or de facto links to inflation.

Back to the question, you should invest in real estate in an inflationary environment, if the interest rate is rising for the right reasons, backed by sustainable economy recovery.

What are the risks of investing in REITs  (32:20)

The impact of Covid-19 had far-reaching implications in the real estate sector, and REITs were not spared. Covid-19 has accentuated circular trends such as the demand of industrial property, due to greater demand in e-commerce. Office REITs face structural headwinds as remote working become more well accepted.  Retail REITs have to adapt its lease structure given that many retail store owners have to adapt to a more technology dependent business environment. Covid-19 highlighted the defensiveness of the sector, even though there was still a sell-down during the peak of market volatility.

Weimei: REITs are still equity investments, so it is unlikely to escape any sell-off in the markets. You should expect equivalent level of volatility relative to broad equities market. It does not mean that the consistent dividend yield of REITs equate to it being sheltered from a sell-off. You will still need to have good risk tolerance.

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Investment involves risk. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Past performance is not an indicator nor a guarantee of future performance. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund. 

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endow.us Pte. Ltd (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus Pte. Ltd., its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.