Potential returns from two key sources: capital appreciation and dividend income
With the US Federal Reserve cutting interest rates to zero and signalling no further rate hikes until 2022, we believe the lower-for-longer environment is beneficial to AP REITs - particularly given the global search for yield. Compared to the end of 2019, the yield spread between Singapore and Hong Kong REITs versus risk-free rates1 have widened2. In other words, investors are being compensated for holding the asset class.
Yield spread movements in three regional REIT markets2
The dividend component of REITs has historically offered investors relatively attractive and sustainable sources of income. Over the past 10 years (as of 31 January 2021), AP REITs have delivered an annualised return of 7.95% p.a., of which 3.10% represents capital appreciation and 4.85% is from dividend income. From a defensive perspective, we believe the stable income stream of REITs also provides a buffer to help cushion overall losses during down markets.
AP REITs have provided relatively attractive returns over the past decade3
In the post-pandemic world, we can expect industrial and specialised REITs to benefit from the secular trend of economic digitalisation. Retail and hospitality REITs are poised to recover as we move towards a vaccinated economy.
Roll-out of vaccines fueled expectations of a wider recovery4
1. The respective country's 10-year government bond yield is typically used as a proxy for the risk-free rate.
2. Bloomberg, as of 31 January 2021. Australia REIT market measured by S&P/ASX 200 A-REIT Index, Hong Kong REIT market measured by Hang Seng REIT Index, Singapore REIT market measured by FTSE ST Real Estate Investment Trusts Index. The comparison is made between 31 January 2021 and 31 December 2019. Past performance is not indicative of future performance.
3. Bloomberg, as of 31 January 2021. Total return of AP REITs performance is the FTSE EPRA Nareit Asia ex-Japan REITs Total Return USD Index, while price return is taken from the FTSE EPRA Nareit Asia ex-Japan REITs Index. Dividend returns are calculated as the difference between the two indices. Indices are rebased to 100 as of 31 January 2011. Past performance is not indicative of future performance.
4. Manulife Investment Management, as of 31 January 2021. Projections or other forward-looking statements regarding future events, targets, management discipline or other explanations are only current as of the data indicated. There is no assurance that such events will occur, and if they were to occur, the result may be significantly different than that shown here.