S-Reits gain on Fed chair Powell reaffirming three rate cuts to come this year

MOST Singapore-listed real estate investment trusts (S-Reits) and property trusts posted gains after the Federal Reserve held its interest rates steady and reaffirmed its projection of three rate cuts this year at the latest Federal Open Market Committee (FOMC) meeting.

The S&P 500 closed its Mar 20 session at a record high and the Straits Times Index also gained, rising 1.35 per cent on Thursday (Mar 21) and marking its highest level in nearly a month – led by real estate, financial and consumer cyclicals names.

The Reit sector has historically enjoyed strong absolute and relative total returns after the end of a monetary policy tightening cycle, said Edward Pierzak, senior vice-president of research at Nareit.

He maintained that “with the Fed entering a more accommodative period, Reit total returns are poised for a period of continued outperformance”.

The iEdge S-Reit Index rallied 2.4 per cent to 1,026.41 in the Thursday session, marking its highest level since Mar 8 – led by Manulife US Reit : BTOU 0%, Prime US Reit : OXMU 0%, Keppel Pacific Oak US Reit : CMOU 0%, Mapletree Pan Asia Commercial Reit : N2IU 0%, and Mapletree Logistics Trust : M44U 0%.

Institutions made net purchases of S$5.7 million of S-Reits and property trusts during Thursday’s session after the FOMC meeting, and on a net sales basis, retail investors sold S$12.3 million of S-Reits. By sub-sectors, diversified and industrial Reits saw the most institutional inflows, with a combined inflow of S$9.7 million.

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For the week until Thursday’s close, institutional investors net sold S$25.36 million in the sector.

The top five gainers among S-Reits and property trusts in the week ahead of the Friday afternoon session were: Manulife US Reit, Keppel Pacific Oak US Reit, ARA US Hospitality Trust : XZL 0%, First Reit : AW9U 0%, and Far East Hospitality Trust : Q5T 0%. These five trusts gained an average of 5.6 per cent in Singapore dollar terms, outperforming the S-Reits benchmark.

As noted earlier in the month, hospitality trusts took the spotlight in the recent earnings season as the S-Reit sub-segment reported year-on-year growth in distribution per unit (DPU) for FY2023, bolstered by a base effect and a strong recovery in international travel. The five hospitality trusts recorded, on average, 21 per cent year-on-year growth in FY2023 DPU.

In its FY2023 annual report published on Thursday, Far East Hospitality Trust noted that major central banks were expected to potentially adjust policy rates downwards after the second half of the year. At the same time, the manager of the stapled trust acknowledged the recovery may be “moderated by geopolitical tensions and a slower rebound in visitor arrivals from some key markets”, adding that “leisure inbound into Singapore may also be affected by the relative strength of the Singapore dollar”.

ARA US Hospitality Trust in its FY2023 financial results noted that the US hotel market has “recovered from Covid-19 and the outlook is positive and stable”. In particular, upscale select-service hotels were outperforming other hotel types and attracting investor interest.

The occupancy rate for US hotels is “forecast to continue growing, driven by the latent recovery of business, group and international demand”, the manager of the stapled trust said.

Also rising were the five S-Reit exchange-traded funds (ETFs), averaging 2 per cent gains for the week through to midday on Friday. In terms of total return, UOB Apac Green Reit ETF rose the most – by 3.14 per cent – followed by Phillip SGX Apac Dividend Leaders Reit ETF which gained 2.47 per cent, and the Lion-Phillip S-Reit ETF which was up by 1.75 per cent. The CSOP iEdge S-Reit Leaders Index ETF gained 1.63 per cent, and the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF gained 0.89 per cent.

As at midday on Friday, Singapore-listed S-Reit ETFs recorded daily trading turnover of S$5.3 million on Mar 21 and 22, 172 per cent higher than the average daily turnover recorded in the year to Mar 20 of S$1.96 million.

The writer is a research analyst at the Singapore Exchange (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.

Source: SGX Research S-Reits & Property Trusts Chartbook.