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 per cent.
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, it has also raised its projection for the longer run rate to 2.9 per cent, from 2.8 per cent. This is significantly higher than the 2.5 per cent in December 2023 and the highest since 2018.
Locally, the iEdge S-Reit Index rose 1.7 per cent on Sep 19, following overnight developments. Across all Singapore-listed real estate investment trusts (S-Reits) and property trusts, there were 30 advancers, five decliners, and four that remained unchanged.
The 10 biggest gainers averaged 3.4 per cent in price gains, and the majority were S-Reits with overseas assets. Until Sep 19, the iEdge S-Reit Index achieved a total return of 5.8 per cent for the year to date.
In terms of fund flows, S-Reits recorded net institutional inflows of S$10.7 million on Sep 19, while retail recorded net outflows of S$2.1 million. The five S-Reits that recorded the largest net institutional inflows were Suntec Reit, Mapletree Logistics Trust, CapitaLand Integrated Commercial Trust (CICT), Mapletree Pan Asia Commercial Trust and Mapletree Industrial Trust.
The five S-Reits that recorded the largest net retail inflows were Frasers Centrepoint Trust, ESR-Logos Reit, Paragon Reit, Mapletree Industrial Trust, and CapitaLand Ascendas Reit.
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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 per cent in total returns this year thus far.
With rates gradually decreasing, the Reit sector may experience some relief. Industry group Nareit noted that Reits will likely be subject to day-to-day share price volatility as equity markets digest and reassess changing probabilities on the path to lower rates.
Over the medium to long term, the two impacts of lower rates on Reits are reduced 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.
CICT recently announced an acquisition of a 50 per cent stake in Ion Orchard mall. The S$1.85 billion deal will increase its Singapore retail footprint by approximately 14.3 per cent in terms of net lettable area, and is expected to provide a pro forma distribution per unit accretion of 1.2 per cent and 0.9 per cent for FY2023 and H1 FY2024, respectively. Leverage ratio is expected to remain stable from 39.8 per cent to 39.9 per cent.
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. SGX RESEARCH
The writer is a research analyst at SGX. For more research and information on Singapore’s Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.
