The global financial landscape shifted dramatically in September 2024, when the US Federal Reserve made headlines by announcing its first rate cut in four years, slashing the overnight borrowing rate by 50 basis points. This unexpected decision, aimed at easing economic pressures and stimulating growth, has had far-reaching effects. However, one of the most exciting ripple effects has been the surge of interest in Singapore Real Estate Investment Trusts (S-REITs).
If you’ve been following the S-REIT market, you’ll know this sector has always been a favorite among yield-seeking investors. But following the Fed’s rate cut, S-REITs have experienced a massive influx of interest from both local and international investors.
Let’s dive into why this rate cut served as the perfect catalyst to ignite a renewed frenzy for S-REITs and how it has driven their performance to new heights.
Why It Matters?
REITs, particularly those in Singapore, rely on external financing to fund the acquisition of properties and expand their portfolios. With interest rates dropping, the cost of debt financing for these REITs falls, boosting their profitability and making them even more attractive to investors. In turn, this leads to better yields and enhanced returns on investment.
This was a game-changer for S-REITs, which had seen somewhat muted performance earlier in the year. But following the Fed’s announcement, a flood of capital poured into Singapore’s REIT market, and by the end of the third quarter, the sector experienced record-breaking inflows. Investors flocked to S-REITs for their high dividend yields, which became even more appealing in a low-interest-rate environment.
As of Q3 2024, the dividend yields for leading S-REIT ETFs ranged between 4.8% and 5.8%, well above many other asset classes. This makes S-REITs particularly appealing in a low-interest-rate environment, where traditional savings accounts and bonds offer minimal returns.
But it’s not just about the yield. S-REITs also offer investors exposure to a diversified portfolio of real estate assets across various sectors, including retail, office, industrial, and logistics properties. This diversification helps to reduce risk and ensures a steady flow of income, even when certain segments of the real estate market face challenges. For example, while retail properties may have experienced some volatility, industrial and logistics REITs have continued to thrive thanks to the ongoing rise of e-commerce.
Record-Breaking Inflows and Performance
The numbers speak for themselves: in the third quarter of 2024, S-REIT ETFs crossed the S$1 billion mark in total Assets Under Management (AUM) for the first time ever. This milestone was achieved after S-REIT ETFs attracted a staggering S$129 million in net inflows during the first three quarters of 2024.
Source: SGX
But it wasn’t just the inflows that made headlines. The performance of S-REITs soared in the wake of the Fed’s rate cut. The iEdge S-REIT Index, which tracks the performance of Singapore-listed REITs, posted a remarkable 17.4% total return in SGD terms during Q3 2024, a sharp recovery from the 11% decline seen in the first half of the year. For investors, this shift marked the beginning of what could be a sustained period of outperformance for the sector.
What’s Next for S-REITs?
Looking ahead, the outlook for Singapore’s REIT market remains optimistic. The rate cut by the Federal Reserve is expected to lead to further inflows into the sector, as investors continue to seek high-yielding, income-generating assets in a low-interest-rate environment.
Moreover, the rise of logistics and industrial real estate is expected to play a pivotal role in driving the growth of S-REITs. As e-commerce continues to grow, the demand for logistics hubs, warehouses, and distribution centers will only increase. REITs that focus on these sectors are well-positioned to benefit from this trend, providing further upside for investors.
Top S-REITs Picks to Watch
As the S-REIT market continues to gain momentum, several key players have emerged as top picks for 2024. Based on both performance and potential for further growth, here are some standout names that our analysts have identified.
1. CapitaLand Ascendas REIT (CLAR) (SGX: A17U)
CLAR is known for its diversified and resilient portfolio, which includes industrial, logistics, and business park properties spread across multiple regions. This wide-reaching portfolio reduces its exposure to risks from any single region, making it a reliable choice for income-focused investors. CLAR’s robust balance sheet further strengthens its position, offering a forward dividend yield of 5.4%, which is attractive for those seeking consistent returns. Our analysts like CLAR because of its strong portfolio management and ability to weather various economic conditions, making it a solid pick for long-term stability.
2. Frasers Logistics & Commercial Trust (FLT) (SGX: BUOU)
FLT is a top pick thanks to its exposure to logistics and industrial sectors in Australia and Europe—both of which are seeing strong demand due to the continued rise of e-commerce. Our analysts appreciate FLT’s low gearing of 33.2%, which allows the trust to expand and take on new projects without overburdening its balance sheet. With a forward dividend yield of 5.8%, FLT offers both growth potential and steady income, making it a great addition to any portfolio looking for a balance of both.
3. Lendlease Global Commercial REIT (LREIT) (SGX: JYEU)
LREIT is favored by our analysts for its combination of high occupancy rates at prime retail assets like 313@Somerset and Jem, which provide stable and reliable rental income. LREIT also has multiple strategies in place to improve its balance sheet, such as potential divestments that could further enhance its financial position. With an expected dividend yield of 6.6% for FY2025, LREIT offers a blend of income stability and growth potential, making it a great choice for investors seeking solid returns from a reliable asset.
For more details on our top picks, you may read more here.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
