To The Moon

After the recent softening in jobs data and inflation figures, the US Federal Reserve declared its first rate reduction in four years, decreasing the overnight borrowing rate by 50 basis points or half a percentage point, in line with market expectations. This brings the fed funds rate to a range of 4.75 to 5%.

The Fed has indicated additional rate cuts, forecasting another 50 basis points this year, a full percentage point in 2025, and half a percentage point in 2026. However, the Fed has also raised its projection for the longer run rate to 2.9% from 2.8%, which is significantly higher from 2.5% in December 2023 and the highest since 2018.

Locally, the iEdge S-REIT Index rose 1.7% on 19 September following overnight developments. Across all S-REITs and Property Trusts, there were 30 advancers, 5 decliners and 4 that remain unchanged. The 10 biggest gainers averaged 3.4% in price gains and majority were S-REITs with overseas assets. Up until 19 September, the iEdge S-REITs Index has achieved a total return of 5.8% for the year-to-date.

In terms of fund flows, S-REITs recorded net institutional inflows of $10.7 million on 19 September while retail recorded net outflows of $2.1 million.

The five S-REITs that recorded largest net institutional inflows were $Suntec Reit(T82U.SI)$ $Mapletree Log Tr(M44U.SI)$ $CapLand IntCom T(C38U.SI)$ $Mapletree PanAsia Com Tr(N2IU.SI)$ $Mapletree Ind Tr(ME8U.SI)$ .

Similarly, the five S-REITs that recorded largest net retail inflows were $Frasers Cpt Tr(J69U.SI)$ $ESR-REIT(J91U.SI)$ $PARAGON REIT(SK6U.SI)$ $Mapletree Ind Tr(ME8U.SI)$ $CapLand Ascendas REIT(A17U.SI)$.

Global REITs have been on the move as central banks recalibrate, setting a more favourable backdrop for policymakers and investors. The FTSE EPRA Nareit Global REITs Index has gained 9.7% in total returns in this year thus far.

With rates gradually decreasing, the REITs sector might experience some relief. According to Nareit, REITs will likely be subject to day-to-day share price volatility as the equity market digests and reassesses changing probabilities on the path for lower rates.

Over the medium to long-term period, the two impacts of lower rates on REITs are lower financing costs which would lead to higher earnings growth, and improved cost of debt and capital which would support acquisition activities. The interest rate hikes since 2022 have led to increased borrowing costs, lower distributions to unitholders, and lower property valuations.

$CapLand IntCom T(C38U.SI)$ recently announced an acquisition of a 50% stake in ION Orchard mall. The $1.85 billion deal will increase CICT’s Singapore retail footprint by approximately 14.3% in terms of net lettable area and is expected to provide a pro forma DPU accretion of 1.2% and 0.9% for FY2023 and 1H2024 respectively. Leverage ratio is expected to remain stable from 39.8% to 39.9%.

S-REITs’ secondary market activity momentum has started to pick up, recording up to 10 acquisitions in the first half of 2024. Additionally, CICT’s private placement achieved a subscription rate of about 3.7 times covered, potentially indicating a recovery in the secondary market and paving the way for the primary markets.

https://www.sgx.com/research-education/market-updates/20240923-reit-watch-s-reits-gain-17-after-feds-rate-cut