4 reasons why S-REITs make a good investment

There is more to S-REITs than just being a good inflation hedge.

Singapore Real Estate Investment Trusts (S-REITs) have had a good reputation amongst investors as it offers a wide diversity of exposures across multiple segments and is governed by a regulatory framework that contains robust safeguards to protect minority shareholders to name a few.

But apart from these factors, financial services expert, Pictet Wealth Management, said there are four specific reasons why S-REITs make a good investment in general.

The first reason is that S-REITS are a defensive sector backed by high-income visibility and quality assets.

According to Pictet Wealth Management, S-REIT's portfolio consists of a mix of conventional and master lease contracts, which assures them of income to have three to five years.

“This translates to approximately 20-33% of rental income [being] up for renewal each year. Coupled with a 90% or more dividend pay-out policy, S-REITs offer investors a visible dividend income stream,” the expert said.

Since S-REITs are also backed by quality properties and managed by reputable sponsors that are either government-linked entities, they are also able to demonstrate resilience in volatile markets.

Another factor why it is good to invest in S-REITs now is because they will be a beneficiary of the opening of borders.

“We believe Singapore is best placed in this re-opening thanks to its high vaccination rate, strong healthcare and social infrastructure. Re-rating potential is strong, with one of the benchmark indices, the SGX S-REIT (iEdge S-REIT) index, still trading 10% below its 2019 pre-COVID levels,” Pictet Wealth Management said.

Those investing in S-REITs will not also have to worry much about inflation. According to the expert, S-REITs offer a certain degree of protection against inflation.

“In an inflationary environment, prices are mostly higher for new rentals (although with a lagged effect on an entire portfolio, depending on their lease expiry profiles). In some cases, master leases have annual rent adjustments that are linked to the consumer price index,” Pictet Wealth Management explained.

Lastly, S-REITs have good shareholder return records making them a good investment.

“Over the past 10 years, the iEdge S-REIT Index has doubled in value and recorded a 7.5% annualised total return, driven largely by dividend income and (to some extent) growth and capital appreciation,” the expert said.