Improved investor sentiment over the path of interest rates fuelled a strong rally in Singapore-listed real estate investment trusts (S-Reits) during the third quarter of 2024, with the sector logging one of its best quarters on record.
The FTSE ST Reit Index rose 13.6% to 714.76 points for the three months ended September 2024, marking its best quarterly performance since Q2 2020. It delivered total returns of 16.4% during the quarter, assuming dividends were re-invested in the index.
Meanwhile, the iEdge S-Reit Index rallied 14.7% in its best quarterly performance since its inception in 2010. Prior to this, the index’s best quarterly performance was in Q2 2020, when it rose 14.1%.
S-Reits log best quarterly performance since 2020 with double-digit returns in Q3
The rally in Q3 2024 came amid expectations of rate cuts by the US Federal Reserve, and on Sep 18, investors got their wish. The Fed cut the federal funds rate by 50 basis points to a range of 4.75 to 5%, and signalled that more could come.
All 31 constituents in the iEdge S-Reit Index ended higher in Q3 with US office S-Reits leading the gainers. $KepPacOakReitUSD(CMOU.SI)$ ’s unit price doubled during the quarter, rising to US$0.27 from US$0.134. $ManulifeReit USD(BTOU.SI)$ rose 93.8% during the same period, while $Prime US ReitUSD(OXMU.SI)$ rose 59.8%.
Other trusts with overseas assets also outperformed, with $CapLand China T(AU8U.SI)$ and $UtdHampshReitUSD(ODBU.SI)$ gaining 27.6% and 24.1%, respectively. S-Reits with office assets also had a good showing, with $Suntec Reit(T82U.SI)$ gaining 26.7% and $OUEREIT(TS0U.SI)$ climbing 23.1%.
Institutional investors – who were net sellers of S-Reits in the first two quarters of 2024 – became net buyers in Q3, with some S$147.6 million of net inflows to the sector. $Mapletree PanAsia Com Tr(N2IU.SI)$ saw the highest amount of net institutional buying during the quarter, with some S$92.4 million of net inflows.
The picture was reversed for retail investors, who had been net buyers during the first half of 2024. They capitalised on the recent market upswing, and net sold some S$128.1 million of S-Reits between July and September. Suntec Reit was the Reit with the highest net selling by retail investors, with S$82.1 million in net outflows.
Retail investors remain overall net buyers of S-Reits for the year to Sep 30, with some S$853.1 million of net inflows.
With central banks moving towards a rate-cut cycle, market expectations are for better days for the S-Reit sector.
S-Reits with a significant portion of floating debt on their books, and trusts that need to refinance or renew their hedges are clear beneficiaries of lower rates. A more conducive interest rate environment can also pave the way for S-Reits to proceed with acquisition or asset enhancement plans.
1. $Mapletree Ind Tr(ME8U.SI)$
On Sep 30, $Mapletree Ind Tr(ME8U.SI)$ ’s manager announced the acquisition of a mixed-use facility comprising a data centre, back office, training facilities and an adjacent accommodation wing in Tokyo, Japan, for a purchase consideration of 14.5 billion yen (S$129.8 million).
The manager intends to finance the proposed acquisition – which is expected to be accretive to unitholders – through Japanese yen-denominated borrowings.
2. $CapLand Ascott T(HMN.SI)$
Meanwhile, $CapLand Ascott T(HMN.SI)$ ’s manager said on Oct 1 it would be acquiring lyf Funan Singapore at an agreed property value of S$263 million.
The yield-accretive acquisition is expected to increase the trust’s total distribution by S$3.5 million, which translates to a distribution per stapled security accretion of 1.5% on an FY2023 pro forma basis.
3. $EliteComREIT GBP(MXNU.SI)$
Elsewhere, $EliteComREIT GBP(MXNU.SI)$ ’s manager said on Oct 3 that it has submitted a planning application to the local authority for a data centre development site in Peel Park, Blackpool.
The application follows the expansion of the Reit’s investment mandate in April, and the manager is evaluating various strategic options for Peel Park, which may include potential partnerships with leading data centre operators.
https://www.sgx.com/research-education/market-updates/20241007-reit-watch-s-reits-log-best-quarterly-performance-2020
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