Top 5 S-REITs That Gained During the Fed’s Latest Rate Pause

June 20, 2023

Last week, I wrote that US Federal Reserve’s (Fed) pause in its rate hike cycle could make it a favourable time to look into Singapore REITs (S-REITs).

This pause marks the Fed’s first break in the course of a 15-month-long series of interest rate hikes and that the benchmark rate continues to stand at a range of between 5.0% and 5.25%.

While the Fed signalled that interest rates could still see two more increases for the rest of this year, the market breathed a sigh of relief as seen by the strong stock market rally in most markets.

Specifically, S-REITs emerged as one of the top performers in the Straits Times Index (STI), in the wake of the Federal Open Market Committee (FOMC) meeting. The iEdge S-REIT Index gained over 3.5% during the week.

Here are the top five gainers among S-REITs & Property Trusts during the week until the close on Thursday (15 June) and what investors should know about them.

Source: SGX, Bloomberg (Data as of 15 June 2023)

1. Keppel REIT

Keppel REIT (SGX: K71U) is a commercial-focused REIT that owns 12 commercial properties worth a combined S$9.1 billion across Singapore, Australia, Japan, and South Korea.

Singaporeans are likely to be familiar with some of the big grade-A office properties owned by Keppel REIT, including One Raffles Quay, Marina Bay Financial Centre and Ocean Financial Centre.

With an attractive dividend yield of 6.8% and strong demand for grade-A office space in Singapore, Keppel REIT will be suitable for long-term income investors.

However, REIT investors should be aware of the dangers from a potential global recession, which could hurt the demand for commercial real estate.

2. Mapletree Pan Asia Commercial Trust

Mapletree Pan Asia Commercial Trust (SGX: N2IU) was formed through the merger of two former standalone Mapletree REITs last year: Mapletree Commercial Trust and Mapletree North Asia Commercial Trust.

It offers a decent 12-month forward dividend yield of 5.5%.

Mapletree Pan Asia Commercial Trust’s core Singapore assets, namely VivoCity and Mapletree Business City (MBC), have seen robust growth in FY2023 and contributed an additional S$33 million to its net property income (NPI).

In fact, NPI from its core assets contributed about 54% of total NPI in FY2023.

One of the key concerns for investors is Mapletree Pan Asia Commercial’s gearing ratio, which stood at 40.9% as of 31 March 2023.

3. Mapletree Logistics Trust

Mapletree Logistics Trust (SGX: M44U) is a logistics-focused REIT that has 185 logistics properties across Singapore, Hong Kong, Mainland China, Australia, India, South Korea, Japan, Vietnam, and Malaysia.

The dividend yield for Mapletree Logistics Trust is 5.2%. However, the REIT’s distribution per unit (DPU) was actually up 2.5% year-on-year (yoy) in FY2023 despite the rising interest rate environment.

Demand for its properties remains strong as seen by the positive rental reversion while its overall occupancy rate improved slightly to 97.0% as of 31 March 2023.

Recently, Mapletree Logistics Trust also announced a large acquisition of eight logistics properties in Japan, South Korea, and Australia.

4. CapitaLand India Trust

The only pure-play REIT for the India Market is CapitaLand India Trust (SGX: CY6U).

The trust’s portfolio includes nine IT business parks, one logistics park, one industrial facility and four data centre (DC) developments in India.

The properties are diversified across Bangalore, Chennai, Hyderabad, Pune, and Mumbai.

As of 12 May 2023, Capitaland India Trust’s assets under management stood at S$2.7 billion.

It also offers an attractive dividend yield of 7.7%.

5. CapitaLand Ascendas REIT

CapitaLand Ascendas REIT (SGX: A17U) boasts a diversified portfolio that includes business and science parks, logistics and distribution centres, industrial, and suburban office properties.

Its property portfolio is also spread across Singapore, Australia, the UK, and the US.

It has a decent dividend yield of 5.9% and the REIT’s management has demonstrated its commitment to proactively managing its assets through capital recycling strategies to enhance the REIT’s value.

Recently, CapitaLand Ascendas REIT proposed to acquire The Shugart in Singapore and announced a planned purchase of a property in Europe.

With a mix of stability and growth, it is ideal for investors looking for long-term capital appreciation and a consistent passive income stream.

Strengthen your portfolio with S-REITs

While the Fed has signalled that the market could still see two more interest rate hikes before the end of the year, it is worth looking into S-REITs to build your long-term portfolio given that we are near the peak of the interest rate cycle.

Investors, however, should be focused on the underlying assets owned by the REITs as property demand, rental rates and sector-specific dynamics will impact individual S-REITs in different ways.

Diversification across various sectors within the S-REIT space could help to strengthen investors’ portfolios in the long term.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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