When Should You Buy The Dip For Singapore REITs

Daniel Lee

15 hours ago4 min read

Investors often shy away from the market when REITs experience a sharp decline, fearing further losses. However, these dips can present excellent opportunities for long-term investors who can differentiate between temporary setbacks and real structural issues.

Here are two key reasons (with case study) why I would buy the dip for certain Singapore REITs, even when the market largely avoids them.

1: Indiscriminate Market Selloffs

During periods of macroeconomic uncertainty - such as geopolitical conflicts (e.g., the Russia-Ukraine war) or global crises (e.g., COVID-19 lockdowns) – the global financial markets tend to experience widespread panic selling.

This results in an indiscriminate market sell down across the globe, where investors rush to liquidate assets without fully assessing the fundamentals of their investments. Naturally, REITs are not spared from this phenomenon as well.

When such irrational fears drive prices down across the global markets, even high-quality and fundamentally sound REITs get caught in the downturn. It is at such moments where the best opportunities to acquire strong REITs at a substantial discount are created.

If the underlying assets remain resilient and the REIT continues to generate stable rental income, then buying during a selloff can provide investors with both a margin of safety and significant upside potential when market sentiment normalizes.

Two good examples of this would be Parkway Life REIT (during COVID-19 lockdowns) and Stoneweg REIT (Post Russian Ukraine War).

Parkway Life REIT

Being in the healthcare sector, Parkway life, if any, should benefit from the ongoing healthcare crisis. In addition, given the track record of the management’s ability to deliver a stable level of DPU with consistent year-over-year growth, the 30% decline in prices during the COVID-19 lockdown panic was unwarranted.

Beyond the temporary indiscriminate selling, the share price of Parkway Life REIT quickly recovered in the following months and pumped further driven by the hype surrounding healthcare-related equities.

Ironically, the main reason that caused Parkway Life REIT to crash by 30% was the same reason that drove the 100% return over the next 2 years.

As such, for high-quality REITs with a proven track record, any form of indiscriminate selling without any actual impact on the fundamental performances of the REIT is an opportunity for investors to buy at a discount.

Stoneweg REIT

Stoneweg EU REIT (previously known as Cromwell EU REIT) situation is slightly different from Parkway Life REIT.

The main driver for Stoneweg’s price decrease from 2022 to 2024 was the fears surrounding the impact of the Russian-Ukraine war (-40%) followed by the impact of higher interest rates (-35%).

While the fears were not unfounded during this period, a buy-the-dip opportunity presented itself when the fundamentals of the REIT displayed resiliency in the face of the threat of the Russian-Ukraine war.

During this period, Stoneweg REIT traded from 6.7% dividend yield in 2021 to

11.46% yield at 2022 and
10.97% yield at 2023

The double-digit yield coupled with the resiliency of their DPU during such challenging times has presented investors with a good margin of safety for a case to buy the dip (I have exposure at around $1.34).

While the recovery story of Stoneweg REIT has yet to be fully played out, the market has since recovered 40% since its 2023 lows as the fears surrounding the Russian-Ukraine war subsided.

I suspect further recovery will be driven when the interest rate environment softens with rate cuts driving borrowing cost down and hence improving the DPU of REITs.

This brings me to the second reason why investors should consider buying the dip for Singapore REITs.

2: Temporary Headwinds Leading To Mispricing

Not all REIT selloffs are purely sentiment-driven. Sometimes, REIT prices decline due to fundamental deterioration — such as lower distributions caused by external factors like a high-interest rate environment.

Since REITs rely heavily on debt financing, rising interest rates can increase borrowing costs, leading to reduced distributions per unit (DPU) even though the performance of the properties remains unchanged.

As a result of a lower DPU, investors may sell off REITs to seek higher-yielding alternatives, driving prices even lower. While a decline in share price may be justified in the short term, it is crucial to assess whether the factors causing this deterioration are temporary.

If the issue is cyclical rather than structural — such as the current high-interest rate environment — there is a strong case for buying the dip. Investors who recognise these temporary headwinds can position themselves for a potential rebound in both share price and dividend payouts when conditions improve.

Conclusion

Market downturns often present the best opportunities for investors who remain rational when others are fearful. Buying the dip in Singapore REITs can be a profitable strategy if you focus on strong fundamentals and temporary mispricing rather than short-term market sentiment.

Investors can achieve long-term gains and profit from future price recoveries by pinpointing high-quality REITs impacted by broad selloffs or short-term challenges. As ever, conducting due diligence and having a clear grasp of the REIT's fundamentals are crucial for making informed investment choices.

Not all REIT sell off is worth buying, and not all prices are worth considering. Investing in the right REITs at the right price is the key to generating long-term returns while reducing your overall risk with an ample margin of safety.

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