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 per cent 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 per cent during the quarter, assuming dividends were re-invested in the index.
Meanwhile, the iEdge S-Reit Index rallied 14.7 per cent 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 per cent.
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 per cent, 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. Keppel Pacific Oak US Reit’s unit price doubled during the quarter, rising to US$0.27 from US$0.134. Manulife US Reit rose 93.8 per cent during the same period, while Prime US Reit rose 59.8 per cent.
Other trusts with overseas assets also outperformed, with CapitaLand China Trust and United Hampshire Reit gaining 27.6 per cent and 24.1 per cent, respectively. S-Reits with office assets also had a good showing, with Suntec Reit gaining 26.7 per cent and OUE Reit climbing 23.1 per cent.
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 Pan Asia Commercial Trust 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.
On Sep 30, Mapletree Industrial Trust’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.
Meanwhile, CapitaLand Ascott Trust’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 per cent on an FY2023 pro forma basis.
Elsewhere, Elite UK Reit’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.
For more research and information on Singapore’s REIT sector, visit sgx.com/research-education/sectors for the monthly SREITs & Property Trusts Chartbook.
REIT Watch is a regular column on The Business Times, read the original version.
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