10 trusts in the iEdge-SREIT Index with highest total returns in August

Source: Company filings, Bloomberg, SGX. Data as of 30 August 2024, in Singapore dollars. Distribution yields are taken from S-REITs & Property Trusts Chartbook 2Q24.

For the second month in a row, the iEdge S-REIT Index has posted positive gains, achieving a 6.7 per cent total return in August. This follows a 5.5 per cent total return in July, culminating in a 12.6 per cent increase in the first two months of 2H24, and reversing the 11.4 per cent decline in total return in 1H24.

This shift in sentiment has been driven by the growing certainty of a Fed Funds Rate reduction at the FOMC meeting on 18 September, indicating a further easing of global financial conditions.

In August, the REITs sector saw a net institutional inflow exceeding S$90 million, continuing a trend of positive net inflows for the second consecutive month following July's S$15 million. During the first half of 2024, net institutional flows were predominantly outflows.

The 10 trusts in the iEdge S-REIT Index with the highest total returns have averaged 11.4 per cent, surpassing the index's overall total return of 6.7 per cent.

Five out of the 10 trusts are predominantly invested in overseas property assets, including two US Office REITs – Keppel Pacific Oak US REIT and Manulife US REIT, with total returns of 26.9 per cent and 19.3 per cent respectively. The other three trusts – Frasers Logistics & Commercial Trust (FLCT), Cromwell European REIT (CEREIT), and Daiwa House Logistics Trust (DHLT) — hold substantial overseas logistics assets and have average total returns of 9.0 per cent in August.

In its 3QFY24 business updates, FLCT announced positive portfolio rental reversions of 25.1 percent, primarily due to stronger rent reversions in logistics properties. In particular, FLCT's Australian logistics properties have average rental reversions exceeding 50 per cent, and FLCT also highlighted that Australia's industrial prime grade net face rents have been rising for the past four years. FLCT's portfolio occupancy rate improved to 95.0 percent, an increase from 94.3 percent in 2QFY24. With a leverage ratio of 33.2 percent, FLCT indicated it has a debt headroom of S$793 million and an interest coverage ratio of 5.7x.

CEREIT's 1H24 financial results showed a like-for-like net property income (NPI) increase of 2.3 per cent, resulting in a half-year distribution per unit (DPU) of 7.050 Euro cents. The 9.5 per cent drop in DPU was primarily attributed to asset sales and rising interest costs over the past two years. CEREIT's portfolio experienced a positive rent reversion of 5.2 per cent with an occupancy rate of 93.6 per cent. CEREIT believes that its strategic pivot to logistics/light industrial (now 54 per cent of its portfolio) has served it well, as this part of its portfolio has benefitted with a 4 per cent rent reversion, and portfolio valuations have grown 2 per cent, with stabilised cap rates reflecting the continued interest from investors.

CEREIT's economic and market commentary suggests that European real estate fundamentals may gradually improve in 2H24, with real estate yields stabilising, and in some markets, even compressing. European transaction volumes were 44 billion Euros in 2Q24, and the market is expected to enter a recovery phase, although significant volume rebounds are unlikely before 2025.

DLHT's NPI rose by 2.8 per cent year-on-year in 1H24 when measured in Yen, but due to the weaker Yen, the NPI in S$ terms declined by 8.2 per cent, resulting in a DPU of 2.45 cents for the period. During the first half of 2024, DLHT expanded its portfolio by adding two quality properties, including a cold storage facility in Vietnam, marking its first property outside of Japan. The portfolio maintained an occupancy rate of 96.6 per cent, with a weighted average rent increase of 6 per cent for renewed and new leases. DLHT reports that operations have remained stable despite the weaker Yen and anticipates modest rent increases for upcoming lease renewals.

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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