S-Reits deliver double-digit total returns in Q3 as investors await rate cuts

Real estate investment trusts in Singapore (S-Reits) rebounded strongly in the third quarter to date, with the iEdge S-Reit index delivering total returns of 10.3 per cent since end-June, amid ongoing expectations for US interest-rate cuts.

As at Sep 12, all 30 of the index constituents were in the black for Q3 to date. The iEdge S-Reit index closed at 1,107.83 on Friday (Sep 12), a year-to-date (YTD) high, bringing total returns YTD to 15 per cent, with over two-thirds of the constituents logging double-digit total returns.

The positive performance comes as investors keenly await the Federal Reserve’s monetary policy meeting, which takes place from Sep 16 to 17. There are growing expectations for rate cuts on the back of recent weakness in US jobs data.

CME FedWatch indicated a 92.5 per cent probability of a 25-basis-point (bp) cut, and a 7.5 per cent likelihood of a 50-bp reduction at the upcoming meeting, as at Sep 12. This compares with a 6.1 per cent chance of no rate cuts and a 93.9 per cent probability of a 25-bp reduction a month earlier.

A rate cut this week would mark the first time the Fed reduces its benchmark borrowing rate in 2025, after three consecutive cuts in 2024. This could benefit S-Reits by lowering their borrowing costs.

In Singapore, domestic interest rates have already been declining, with the three-month compounded Singapore Overnight Rate Average falling from 3.02 per cent on Jan 2 to 1.53 per cent on Sep 12.

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Some of the outperformers YTD include Reits with predominantly Singapore portfolios, such as OUE Reit, CapitaLand Integrated Commercial Trust (CICT), Lendlease Global Reit, and Keppel Reit. Their YTD total returns ranged from 23.5 per cent to 30.2 per cent as at Sep 12.

These counters reported resilient portfolio performance with stable occupancy and positive rental reversions in their latest first-half results.

OUE Reit posted a 5.4 per cent improvement in distribution per unit (DPU) for H1. This was on the back of a sharp 17.3 per cent year-on-year (yoy) decline in finance costs, underpinned by an active capital management approach in a declining interest-rate environment. Its Singapore office portfolio also maintained stable occupancy, with positive rental reversion of 9.1 per cent in Q2.

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Similarly, CICT’s DPU rose in H1, by 3.5 per cent, amid stable revenue and lower finance costs. Its overall portfolio occupancy was stable at 96.3 per cent, while its retail and office portfolios recorded positive rental reversions.

Keppel Reit’s net property income increased by 11.8 per cent yoy, as its Singapore portfolio continued to be an engine of growth and key contributor to overall performance.

Elsewhere, several US office S-Reits, including Prime US Reit and Keppel Pacific Oak US Reit, also ranked among the outperformers YTD.

Retail investors have been net buyers of S-Reits YTD, with the sector receiving total net inflows of around S$600 million as at Sep 11. Meanwhile, institutional investors were net sellers of S-Reits, with more than S$800 million in net outflows over the same period.

However, several S-Reits bucked the trend to record net institutional inflows YTD; these include Suntec Reit, OUE Reit and CICT. Institutions have also been net buyers of the sector last week, with net inflows of S$5.4 million between Sep 8 and 11. 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 S-Reits & Property Trusts Chartbook.