Hello fellow investors, and welcome back to ‘The Dividend Uncle’! If you’re new here, this is where we dive deep into the world of REITs, dividends, and long-term investing.

So, I’ve noticed something lately that’s got me a bit worried. It seems like a lot of REIT investors are starting to wave the white flag and give up. And here’s the kicker, just when I believe we might be on the verge of an upturn!

Before we dive in, I must let you know that this content is for informational and educational purposes only and does not constitute financial advice. The opinions expressed are based on publicly available information and personal analysis, and they are not tailored to your specific financial situation. The REITs and institutions mentioned are cited purely as examples. While I have no affiliations, sponsorships, or financial relationships with any of them, I may personally hold positions in some of the investments discussed. Before making any investment decisions, you are strongly encouraged to consult a licensed financial adviser.

Let’s dive right in.

Concerning Signs of Investors Throwing in the White Flag

Let me explain what’s been going on. For the first time in a long while, the weekly top buys and sells on the SGX have almost no REITs in sight! Can you believe that? Only Keppel DC REIT showed up on the ‘sells’ list—and zero REITs on the ‘buys’. Now that’s a big shift from what we usually see, and it’s got me thinking that investor sentiment towards REITs is at rock bottom.

But wait, there’s more. I recently ran a survey on REIT sentiments on my YouTube channel, and the results were, well, a little shocking. Expectations for REIT prices to rise by year-end have seriously deflated. In a matter of 3 weeks, the percentage of investors who think that REIT prices will remain flattish, growing by at most 10% by the end of the year grew by 9% points, from 33% to 42%.

I’ve also had conversations with friends and fellow investors, and the general mood is one of frustration and disappointment. After years of underperformance—especially in the last 3 to 4 years—many are feeling fed up. That rally we were all waiting for? It never really came, did it?

I get it. It’s been a tough ride. But, and this is a big but—now is not the time to give up on REITs. Trust me on this.

Here’s why I’m saying that. The U.S. Federal Reserve looks set to cut interest rates by September this year. This time, it’s not just market speculation, the data is backing it up. Inflation has come down substantially, and the pressure to raise rates is easing. Historically, REITs perform exceptionally well in the year following interest rate cuts.

So if you’re thinking of bailing on REITs, my advice is simple: Hold your horses. We could be on the brink of an upturn, and it might happen sooner than we expect.

Now, if there’s one REIT I think is poised to do really well over the next year, it’s CapitaLand Integrated Commercial Trust, or CICT for short. This REIT is often seen as the bellwether for Singapore’s REIT market, and there’s a good reason for that.

Firstly, CICT owns some of the best retail malls and offices in prime locations across Singapore. We’re talking about places like Raffles City, Plaza Singapura, and Funan, locations that attract strong footfall and house top-tier tenants. Sometimes when I sit down and run through the underlying quality of its portfolio, I really see it ranking far ahead of most if not all other REITs. Just look at its occupancy in Q2 2024, the committed occupancy is 96.8%, with the retail and office portfolios achieving positive rent reversions of 9.3% and 15.0% respectively. The quality of these assets is unmatched, and that’s why I believe CICT will continue to perform well moving forward.

Secondly, CICT is well-diversified within itself. If you think back to the Covid period, when retail malls were taking a hit, guess what was holding the fort? The office segment. With its strong tenant base on fixed leases, CICT’s office properties were able to weather the storm while the retail side was recovering. This level of diversification is a big plus for investors because no matter what the economy throws at us, CICT has different legs to stand on. And hey, if you pair CICT with CapitaLand Ascendas REIT, you’re basically covering the entire property landscape in Singapore, from retail to offices to industrial. That’s a powerhouse combo!

Now, let’s talk dividend distribution. In Q2 2024, CICT was one of the few REITs to actually increase its distribution per unit (or D.P.U.), despite the rising financing costs that have been eating into everyone’s margins. Other than two others, all Singapore REITs announced a decline in distribution per unit in Q2 2024. This achievement should tell you something about CICT’s management and asset quality. Even with the higher interest rates, they’ve managed to deliver for investors. In addition, potential acquisition for the remaining 55% stake in CapitaSpring may be a catalyst for further increase in distributions.

Lastly, we can’t forget that CICT is the largest REIT in Singapore by market cap, at about $14 billion. When interest rates start coming down, and they will soon, institutions will begin flocking back to the REIT space. And when that happens, the big boys like CICT will be the first to benefit. Institutional money tends to gravitate towards size and liquidity, and CICT, being the giant that it is, will likely be a top beneficiary of this shift. So, if you’re looking to ride the wave when the upturn comes, CICT should definitely be on your portfolio.

The Dividend Uncle’s Take: Time to shift to Higher-yielding REITs

Finally, let me tell you what I’m personally doing during this quiet period in the REIT market. Some of you might know that I’ve been a strong advocate of Singapore Savings Bonds (or SSBs) for their safe and steady returns. But with REITs poised to make a comeback, I’m starting to shift some of my funds.

I’m moving some capital out of lower-yielding SSBs, as well as from money market funds, and gradually reallocating it into REITs, particularly the gem I mentioned earlier, with strong fundamentals and good prospects for the coming year.

Now, don’t get me wrong, I’m not abandoning SSBs entirely. They’ve been good to me, and they’ll continue to be part of my strategy. But knowing when to make these strategic shifts is key to taking advantage of what’s to come.

So, if you’re feeling frustrated with REITs’ recent underperformance, hang in there! I have a feeling the tide is turning. And when it does, REITs will once again prove why they belong in any long-term income portfolio.

Alright, that’s it for today’s post! If you found this discussion helpful, don’t forget to smash that like button, keep a lookout for the latest posts on this website and subscribe to my YouTube channel, for more insights on REITs, dividends, and income investing here in Singapore. And hey, let me know in the comments—are you still holding on to your REITs, or have you shifted focus to other investments? I’m curious to hear where everyone stands.

Thanks for tuning in, and until next time—happy investing, everyone!