• Global REITs faced challenges over the 2023, led by the impact of higher interest rates. Broadly, the higher rates increased the costs of borrowing, reduced the value of properties, with the higher financing costs also lowering distributions for multiple REITs.

• The iEdge S-REIT Index maintains an indicative dividend yield of 5.6% compared to 4.2% for the FTSE EPRA/Nareit Developed Index. Over the past 12M, the iEdge S-REIT Index generated a 3.1% decline with dividends boosting the total return to 3.0%. At the same time, the FTSE EPRA/Nareit Developed Index gained 2.8%, with a 7.3% total return.

• Singapore’s 10 largest trusts of the S-REIT Sector together comprise more than 75% of the weights of the iEdge S-REIT Index. These 10 trusts averaged 0.7% declines over the past 12M, while also maintaining average indicative yields of 5.6%. As of the Friday close, FLCT maintained the highest yield of the 10 trusts, at 6.2%, after the REIT saw a 5.8% decline in unit price over the 12M, while paying a 7.04 cents DPU in FY23 vs 7.62 cents in FY22.

Global REITs faced challenges over the 2023, led by the impact of higher interest rates. From a broad perspective, the higher rates increased the costs of borrowing, reduced the value of properties, as the higher financing costs also lowering the distributions for multiple REITs. The prospect of lower interest rates in 2024 boosted the FTSE/EPRA NAREIT Developed Index in the final two months of 2023, which saw the Index book a gain of 4.4% for the 2023 year, with dividend reinvestment increasing the total return to 8.9%.

More than 100 US-listed REITs comprise more than 60% of the weights of the FTSE EPRA/Nareit Developed Index. At a recent industry event, Nareit’s REITworld: 2023 Conference, analysts from Evercore ISI and BofA Securities shared their optimistic albeit qualified outlooks for the REIT sector. Steve Sakwa from Evercore ISI predicted that the Fed reserve would lower interest rates three to four times in 2024, which would boost REITs by 15-20%, especially in the second half of the year. At the same event, Jeff Horowitz from BofA Securities expected more IPO activity in the REIT market, as investors seek exposure to real estate assets.

The iEdge S-REIT Index also rose 0.3% with a 6.6% total return in 2023. The chart below shows that the two indices have performed similarly since the end of 2019, with a 4.5% decline in total return for the FTSE EPRA/NAREIT Developed Index and 5.4% decline for the iEdge S-REIT Index. For the S-REIT Sector, DBS Group Research provided a Singapore Industry Focus report in mid-Dec, which can be read here.

The iEdge S-REIT Index maintains an indicative dividend yield of 5.6% compared to 4.2% for the FTSE EPRA/Nareit Developed Index.

Among Singapore’s 10 largest trusts of the S-REIT Sector by market value,  CapitaLand Integrated Commercial Trust (‘CICT’) maintains the highest market value at S$13.4 billion. In Nov, CICT maintained that its properties in Orchard Road and suburban areas had seen rents recover and remain resilient respectively. The retail trade sector also registered year-on-year sales growth in most industries, led by food and alcohol, cosmetics and toiletries, and apparel and footwear. CICT also expects Singapore's tourism activity to bounce back by 2024.

Source: SGX, Refinitiv (Data as of 5 January 2024). Note Refinitiv calculate the ratio of the annualised dividends to the price of a stock. Dividends are adjusted to account for any stock splits during the 12-month period. Gross dividends (dividends before taxes) are used to calculate dividend yield and the price is the closing price on the prior trading day and the dividend yield only measures recent historical dividends, but does not address any expected dividend changes.

Among Singapore’s 10 largest trusts of the S-REIT Sector by market value, Frasers Logistics & Commercial Trust (‘FLCT’) currently maintains the highest indicative yield, at 6.2%, while, Frasers Centrepoint Trust (‘FCT’) saw the strongest unit price performance over the past 12 months with a 10.2% increase in unit price. While FCT properties are all located in Singapore, just over 10% of the FLCT portfolio value is based in Singapore, with just over 50% based in Australia and the remainder in the UK and Europe. For more details on the location of REIT property assets, see pages 18-19 in the Chartbook: S-REITs & Property Trusts here.

FLCT’s 6.2% indicative yield was on the back of a 5.8% decline in its unit price over the past 12 months and a 7.04 cents distribution (‘DPU’) per unit FY23 (ending 30 Sep) versus 7.62 cents in FY22. The manager of FLCT maintained a fortnight ago that FLCT's revenue and Adjusted Net Property Income (NPI) fell 6.5% and 9.0% to S$420.8 million and S$311.4 million in FY23, respectively. The main reasons were the sale of Cross Street Exchange, weaker exchange rates, and lower income from some properties. Higher operating and finance costs also affected the results. Distributable income dropped to S$262.3 million from S$281.8 million in FY22. The acquisition of four Australian properties in 2HFY22 and the completion of Connexion II and Worcester partly offset the declines. FLCT closed Friday at S$1.13, with a Refinitiv consensus estimate target price of S$1.32.

FCT achieved record-high gross revenue and NPI of $369.7 million and $265.6 million for its FY23 (ended 30 Sep), growing by 3.6% and 2.7% respectively. The main drivers were higher rental income from higher occupancy, new and renewed leases, step-up rents and atrium leasing. However, higher operating expenses, especially maintenance, utility and staff costs, offset the NPI growth. Distribution to unitholders was $207.7 million, a slight decrease of 0.2%, due to higher interest expense from higher interest rates and loans for NEX and Waterway Point acquisitions. DPU was 12.150 cents, slightly lower than 12.227 cents in FY2022. FCT closed Friday at S$2.26, with a Refinitiv consensus estimate target price of S$2.39.

The S-REIT sector's 10 largest trusts by market value maintained an average P/B ratio of 0.93x on Friday. On average, they were 13% lower than their 5-year P/B ratios. Only Suntec REIT was above its Refinitiv consensus estimate target Price, at S$1.24 versus SS$1.15. The other nine trusts were 8% below their Refinitiv consensus estimate target prices on average. These estimates available on the SGX Stock Screener represent the average of analysts' opinions on the stock performance for the next 18 months. The whole S-REIT sector saw there unit prices at an average/median of 20%/15% below Refinitiv consensus estimate target prices, with an average/median P/B ratio of 0.74x.

The trusts of the S-REITs sector that are currently listed for trading are tabled below:

Source: SGX, Refinitiv, Bloomberg (Data as of 5 January 2024), note *Stapled Trust, **Business Trust