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 H2 2024, and reversing the 11.4 per cent decline in total return in H1 2024.
This shift in sentiment has been driven by the growing certainty of a rate reduction at the Federal Open Market Committee meeting on Sep 18, indicating a further easing of global financial conditions. In August, the real estate investment trust (Reit) sector had 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 (Cromwell E-Reit), and Daiwa House Logistics Trust (DHLT) – hold substantial overseas logistics assets and have average total returns of 9 per cent in August.
In its Q3 FY 2024 business updates, FLCT announced positive portfolio rental reversions of 25.1 per cent, 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 per cent, an increase from 94.3 per cent in Q2 FY 2024. With a leverage ratio of 33.2 per cent, FLCT indicated it has a debt headroom of S$793 million and an interest coverage ratio of 5.7x.
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Cromwell E-Reit’s H1 2024 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.
Cromwell E-Reit’s portfolio experienced a positive rent reversion of 5.2 per cent with an occupancy rate of 93.6 per cent. It 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.
Cromwell E-Reit’s economic and market commentary suggests that European real estate fundamentals may gradually improve in H2 2024, with real estate yields stabilising, and in some markets, even compressing. European transaction volumes were 44 billion euros (S$63.5 billion) in Q2 2024, 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 H1 2024 when measured in yen, but due to the weaker yen, the NPI in Singdollar terms declined by 8.2 per cent, resulting in a DPU of S$0.0245 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 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 reported that operations have remained stable despite the weaker yen and anticipates modest rent increases for upcoming lease renewals. 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.
