2023 is a year where REITs as a sector have delivered poor returns to unitholders. Only 1 out of 6 sectors have a positive YTD return and only 14 out of 45 REITs have delivered positive returns year to date.
Of these 14 REITs, only 10 have delivered returns of more than 5%, indicating a positive capital return. Only 3 REITs have delivered returns of more than 10%, namely AIMS APAC REIT, Frasers Hospitality Trust and Keppel DC REIT.
Positive returns here include dividends distributed so far this year. For most of these REITs, it would be a half year worth of dividends which is about 3-4% yield.
Before we take a look at these REITs individually, here’s an update of the performance by sector:
REITs Sector Performance in 2023
| Sector | YTD return (% average) | Yield (% average) | P/B (average times) |
| Data Centre | 15.0 | 5.8 | 1.10 |
| Hospitality | -0.5 | 7.5 | 0.69 |
| Industrial | -2.5 | 7.1 | 0.92 |
| Healthcare | -2.5 | 2.0 | 1.15 |
| Retail | -9.0 | 7.8 | 0.71 |
| Office | -36.1 | 19.1 | 0.39 |
| Total | -10.3 | 9.9 | 0.73 |
The only sector delivering a positive return so far is the Data Centre sector, albeit with a small sample pool of 2 (namely Keppel DC REIT & Digital Core REIT). The next performer is Hospitality which is benefiting from a rebound from the prior years.
The Industrial and Healthcare sectors continue to deliver decent returns due to the high quality asset portfolio that many of the REITs in these sectors have, despite the near term economic headwinds.
The Retail sector is a barometer of the health and confidence level of consumer spending. Many retail REITs also have a variable rent component which is dependent on the level of shopper spending. With the slow down in the economy and decline in consumer confidence and spending, this is one of the worst hit sectors.
The Office sector fared the worst as many of the S-REITs are US centric office REITs who have skewed the average returns to the downside. Non-US centric office REITs such as OUE Commercial, IREIT Global and Suntec have also delivered total returns of -10% to -30%, showing that the weakness of the office sector is systemic across the globe as companies cut headcount and reduce leasing space to save cost as employees push back on the return to office mandate.
Now, let’s move on to a deeper look at the individual REITS.
14 REITs That Delivered Positive Returns in 2023
We found 14 REITs that delivered positive returns, many of these names are the usual suspects. 8 out of 14 of these REITs are known to have strong management and one of the four biggest and well regarded sponsors such as CapitaLand, Keppel, Mapletree and Frasers who can support the REIT through the current environment.
| REIT | Ticker | Sector | YTD Return | Yield | P/B (times) |
|---|---|---|---|---|---|
| Keppel DC REIT | AJBU | Data Centre | 26.8% | 4.6% | 1.55 |
| Frasers Hospitality Trust | ACV | Hospitality | 14.2% | 4.6% | 0.78 |
| AIMS APAC REIT | O5RU | Industrial | 12.1% | 7.4% | 0.96 |
| Mapletree Logistics Trust | M44U | Industrial | 9.2% | 5.3% | 1.18 |
| CapitaLand India Trust | CY6U | Others | 7.5% | 7.0% | 1.06 |
| CapitaLand Ascendas REIT | A17U | Industrial | 6.9% | 5.7% | 1.19 |
| Mapletree Industrial Trust | ME8U | Industrial | 6.8% | 5.8% | 1.23 |
| Far East Hospitality Trust | Q5T | Hospitality | 6.7% | 6.1% | 0.71 |
| Frasers Centrepoint Trust | J69U | Retail | 6.7% | 5.5% | 0.94 |
| NetLink NBN Trust | CJLU | Others | 6.1% | 6.2% | 1.27 |
| United Hampshire US REIT | ODBU | Retail | 4.5% | 12.1% | 0.58 |
| Digital Core REIT | DCRU | Data Centre | 3.2% | 7.0% | 0.65 |
| Keppel REIT | K71U | Office | 2.3% | 6.7% | 0.67 |
| ParkwayLife REIT | C2PU | Healthcare | 2.0% | 4.1% | 1.58 |
1) Keppel DC REIT (KDCR): +26.8%
Keppel DC REIT had the strongest performance out of the 45 REITS, supported by a share price recovery this year as the tech industry continued its robust growth, with high levels of demand for data centres. KDCR peaked at above $3 in June 2021 before falling by nearly half, bottoming at $1.60 in October 2022 before recovering to $2.05 now.
KDCR’s saw FY22 revenue and earnings beat FY21 and followed up with 1H23 outperforming 1H22 as revenue increased by 3.6% while distributable income remained stable due to the impact of finance cost.
Portfolio occupancy remained healthy at 98.5% with a long portfolio weighted average lease expiry (WALE) of 8.0 years as at June 2023.
Gearing was healthy at 36.3%, with 73% of borrowings fixed. Average cost of debt for 1H 2023 was 3.1% and interest coverage ratio at 6.0 times.
2) Frasers Hospitality Trust (FHT): +14.2%
Frasers Hospitality Trust is a clear beneficiary of the post pandemic travel recovery as air travel growth continues its recovery and FHT sees sustained recovery across its key markets.
1H23 revenue and NPI increased by more than 40% due to the improved operating environment while DPU increase by nearly 80%. This strong performance was including the disposal of a key Sofitel Sydney asset in April 2022. Comparing like for like, gross revenue and NPI would have been up 68% and 77% YoY respectively.
Due to its timely asset disposal, FHT’s gearing stood at 35.3% and FHT does not have any loans due until FY2024. As it has 75.1% of fixed-rate borrowings which were no doubt fixed at a timely manner, FHT has an effective cost of borrowing was 3.0%, much lower than many of its peers.
3) AIMS APAC REIT (AA REIT): +12.1%
AA REIT is a noteworthy outperformer as it does not belong to one of the 4 sponsors, instead its sponsor is AIMS Financial Group, a financial services and investment company based in Australia.
AA REIT has delivered a positive YTD, 1y and even a positive 5y return. AA REIT even outperformed its peers in the industrial sector such as CapitaLand Ascendas, Mapletree Industrial and Mapletree Logistics, all 3 who are perceived by many as the best REITs in Singapore.
AA REIT has a broad portfolio of logistics and warehouse assets, industrial and business parks. In its most recent quarter earnings, gross revenue and DPU both increased by about 5% as it reported a high occupancy rate of 98.1% with positive rental reversion of 38.0% and a low gearing of 32.9% after the completion of an equity fund raising.
4) Mapletree Logistics Trust: +9.2%
MLT delivered DPU increase for 1Q24 of 3.1%, although gross revenue declined 2.9% due to weaker exchange rates. The decline was mitigated by better performance in Singapore and contribution from recent acquisitions in Japan and South Korea, partly offset by weaker performance in China.
MLT also maintained resilient operational performance underpinned by 97.1% occupancy and 4.2% positive rental reversions.
5) CapitaLand India Trust: +7.5%
CLINT also delivered strong operational performance as net property income grew 3% respectively YoY in Singapore dollar terms, while DPU for 1H FY 2023 decreased 22% due to an enlarged unit base after the successful preferential offering in July 2023, higher finance costs and depreciation of the INR against the Singapore Dollar.
Excluding the impact of the preferential offering, the INR DPU is lower by 3% on a year-on-year basis, while SGD DPU fell by 12% year-on-year to 3.76 Singapore cents due to SGD/INR currency movements.
However, the preferential offering put CLINT in a stronger position for future acquisitions as gearing decreased from 40% to 33%.
6) CapitaLand Ascendas REIT: +6.9%
CLAR’s gross revenue for 1H 2023 rose by 7.7% YoY due to the newly acquired properties in Singapore in 1H 2023 and the US during FY2022. In addition, higher utilities income and service charges were recorded from the Singapore portfolio.
The DPU declined by 2.0% due to higher interest costs as well as the lower distribution as a result of the enlarged unit base following the issuance of new units pursuant to CLAR’s private placement in May 2023. Similarly, the new units reduced gearing from 38.2% to 36.7%, placing CLAR in a position to carry out acquisitions quickly when the opportunity arises.
7) Mapletree Industrial Trust: +6.8%
MIT’s Gross revenue and net property income for 1QFY23/24 increased by 1.7% and 0.7% YoY as the contributions from new leases across various property clusters were partially offset by higher property operating expenses.
However, the DPU for 1QFY23/24 fell by 2.9% YoY due to finance costs as well as the enlarged unit base as a result of the private placement on 25 May 2023 and distribution reinvestment plan for distributions from 3QFY21/22 to 3QFY22/23.
The placement was used for a strategic diversification with the proposed acquisition of a data centre in Osaka, Japan. Moving forward, MIT intends to continued strategic focus on pursuing accretive acquisitions and developments as well as selective divestments of non-core assets.
8) Far East Hospitality Trust: +6.7%
FEHT was also a strong beneficiary of the post pandemic recovery, albeit not as strong as FHT, with revenues and distributions up 26.9% and 24.7% respectively in 1H23.
ADR and RevPAR for the hotels increased by 71% and 97% respectively while ADR and RevPAR for the serviced residences both increased by about 23%.
FEHT has a low leverage of 32.0%, however the average cost of debt increased to 3.2% per annum on the back of higher interest rates as compared to last year. The proportion of fixed rate borrowings stood at 47.2% which exposes FEHT to substantial interest rate risk which the REIT intends to cushion using its conditional incentive fee that it received from selling Central Square to City Development in Dec 2021.
9) Frasers Centrepoint Trust: +6.7%
FCOT 1H2023 gross revenue rose 6.5% on the back of higher occupancy, stronger turnover rents, positive rental reversion for new and renewed leases and higher atrium income. With the higher revenue, NPI for 1H2023 increased 5.7%. Distribution was 0.3% higher due to higher finance cost.
FCOT’s aggregate leverage as at 31 March 2023 stood at 39.6 (30 September 2022: 33.0%). The increase in leverage was attributed to the increase in bank borrowings to finance the acquisitions of the effective 25.50% interest in NEX and the additional 10.00% interest in Waterway Point which were completed in Feb 2023.
The committed occupancy for the retail portfolio hit a high of 99.2%. 1H2023 average rental reversion for the retail portfolio was 1.9%. The shopper traffic and tenants’ sales growth in 1H2023 remained robust. Shopper traffic was 35.3% higher year-on-year and tenants’ sales was 9.2% higher year-on-year.
10) NetLink NBN Trust: +6.1%
Netlink NBN Trust has a business model with stable and recurring income. Netlink delivered revenue growth for 1Q24 of 6.2% and increased profits of 2.1% from more projects and higher connection orders offset by higher operating costs.
11) United Hampshire US REIT: +4.5%
United Hampshire’s gross revenue and net property income for 1H 2023 rose 13.3% and 14.0% YoY. This growth was supported by newly entered leases and rental escalation from existing leases as well as contribution from Upland Square Shopping Center which was acquired in July 2022.
Committed occupancy reached a high of 97.9%, along with a long WALE of 7.2 years. There is minimal roll-over risk with only 0.9% of the leases expiring in 2023. The majority of Grocery & Necessity leases are triple net with built-in rental escalations over the lease term. This mitigates the risk of increases in operating related expenses
12) Digital Core REIT: +3.2%
Digital Core REIT investors’ journey has been a stark contrast to those of its counterpart, Keppel DC REIT.
Digital Core REIT went through a big drop as finance costs coupled with bankruptcy issues with its second biggest customer took its toil and investors probably believe that the bottom is near.
Looking at its operational performance, Revenue increased by 1.1% YoY while NPI decreased by 0.7% due to higher operationa costs. DPU decreased by 6.8% as it was also impacted by finance costs.
The decline was not as bad as expected and pointed to an overreaction in share price. In addition, its second biggest customer remained current on its rental obligations.
13) Keppel REIT: +2.3%
Keppel REIT have been an underperformer and it looks more like a case of a near term bottom rather than a robust recovery.
KREIT’s parent, Keppel Corp distributed Keppel REIT’s units to reward their shareholders and this in turn boosted the share price.
Property income in 1H23 increased 4.7% YoY due to higher rentals achieved and portfolio occupancy. However, 1H23 distribution to unitholders was lower YoY due mainly to higher property expenses and borrowing costs. KREIT was able to maintain high portfolio committed occupancy of 94.9% and positive rental reversion.
14) ParkwayLife REIT: +2%
Like United Hampshire US REIT, ParkwayLife REIT have assets in defensive industries, being groceries/necessity based retail properties and healthcare and have demonstrated resiliency in these times.
PLifeREIT’s gross revenue for 1H 2023 increased by 23.6% YoY due principally to contribution from the five nursing homes acquired in September 2022 in Japan, as well as higher rent from the Group’s Singapore properties, partially offset by the depreciation of the Japanese Yen. Property expenses increased by 4.3% while DPU grew by 3.3% due to higher finance costs
PLifeREIT maintained a healthy gearing level of 35.3% and low all-in cost of debt at 1.19% with no long-term debt refinancing needs till February 2024.
Certain sectors outperformed year-to-date.
Looking at each REIT sub sector, there is a clear outperformer in Data Centres, with Hospitality and Industrial in second and third place. Most sectors performed poorly on average and have only one or two REITs that have delivered a positive YTD return.
In addition, looking at the top 3 performers, they were able to maintain a strong portfolio and disciplined capital management structure and delivered positive returns to unitholders.
The remaining performers mostly maintained strong operating performance but were comparably weaker due to the weaker capital management structure or faced lower distributions due to currency exchange issues or an expanded share base. If you’re an investor in any of these REITs, remember to keep an eye on their upcoming performance.
And if you’re looking for a strategy to pick the best REITs (and dividend stocks) for your portfolio, Chris shares how at his live masterclass.
Alvin shared a deep dive of REITs performance over the past 10 years previously. While past performance doesn’t guarantee future results, you may find more REITs worth looking into in his report.