S-REIT Overview: Recent Investment Flow & Value Investing Trends

• In the 2024 year through to 13 Aug, retail investors have net bought ~S$900 million in the REIT Sector, comprised of S$3.4 billion of total retail buying, and S$2.5 billion of total retail selling. By Sector, Singapore’s REIT Sector booked the most net retail inflow this year, followed by Industrials at S$600 million, and Real Estate (ex-REITs) at S$340 million.  
   
• The iEdge S-REIT Index declined 11% in the 2024 year to 13 Aug, with distributions reducing the decline in total return to 6%, forming a divergence in valuation metrics between the local and global REIT benchmarks. The iEdge S-REIT Index also currently maintains a consensus estimate TP of 1,185, which is ~17% higher than the 1,017 close on 13 Aug.
   
• The iEdge S-REIT Index P/B ratio has decreased to 0.86x, which is significantly lower than the 5-year average P/B ratio of 1.01x, by more than one standard deviation. In contrast, the global benchmark FTSE EPRA NAREIT Global REITs Index’s P/B ratio stands at 1.33x, exceeding its 5-year average of 1.13x by more than one standard deviation.
   

Singapore currently lists 39 trusts for trading that represent the S-REIT Sector that consists of 32 REITs, five Stapled Trusts and two Business Trusts. Singapore also lists five ETFs that track REITs.

Combined, the S-REIT Sector maintains a market capitalisation of S$90 billion, and on average has seen more than S$220 million in units change hands every day this year. Performances across the S-REIT Sector have been mixed, with 13 of the trusts posting positive total returns this year, compared to 26 booking declines in total return. While higher interest rates have impacted distributable income via financing costs and currency translations, on the growth front, investors have looked with the sector for evidence of sustained occupancy rates, diverse tenant bases, positive rental reversions, and the capacity to engage in accretive transactions and initiatives such as asset enhancement initiatives. Within the sector, there are four S-REITs currently trading above their book value, and two REITs have a price-to-book (P/B) ratio exceeding their 5-year average. This is in-line with the iEdge S-REIT Index, which has spent the majority of the year with a P/B ratio more than one standard deviation (s.d.) below its 5-year average. 

In the 2024 year through to 13 Aug, retail investors have net bought S$913 million in the REIT Sector, comprised of S$3.4 billion of total retail buying, and S$2.5 billion of total retail selling. By Sector, Singapore’s REIT Sector has booked the most net retail inflow this year, followed by Industrials at S$600 million, and Real Estate (Ex-REITs) at S$33 million.  

Flow and performance observations this year suggests motivations for the net retail buying maintained some semblance to the principles of value investing:

• Firstly, based on constituents and weights, the iEdge S-REIT Index currently generates an Index consensus estimate target price of 1,185, around 17% higher than the 13 Aug index level of 1,017. This is not new, on average the Index has been priced around 17% lower than the consensus estimate target price since the end of 1H22. The consensus estimate target price has decreased 3% from 1,227 at the end of 2023. This compared to the target price decreasing 7% in 2023 from 1,317 at the end of 2022, and decreasing 12% in 2H22 from 1,490 at the end of 1H22. 
   
• Secondly, the iEdge S-REIT Index has declined 11% in the 2024 year to 13 Aug, with distributions reducing the decline in total return to 6%. The P/B ratio of the Index is presently at 0.8574x, more than 1 s.d. below the 5-year average P/B of 1.0149x. On the other hand, the P/B of the global benchmark FTSE EPRA NAREIT Global REITs Index is now at 1.33x, more than 1 s.d. above its 5-year average P/B of 1.13x. Note that US REITs comprise a 72% weight in the FTSE EPRA NAREIT Global REITs Index, and the two most recent earnings seasons in the US have seen US REITs have generally adapt to the challenges of high finance costs, with twice as many REITs exceeded estimates compared to those that fell short.
   
• Thirdly, there was an increase in the pace of net retail buying as the market moved closer to the certainty of the next FOMC rate cut. In 2023, the S-REIT Sector recorded S$790 million of net retail inflow which accelerated to S$981 million in 1H24. The rate of net retail inflow in 1H24 mirrored the pace observed in the 2H24, during which there were a total of 275 basis points in Federal Funds Rate hikes. This potentially indicates that investors are actively seeking value, undeterred by the previous rate hikes and optimistic about the potential rate cut. While not a significant correlation, the iEdge S-REIT Index has also seen a directional correlation to the US Fed Fund Futures over the past 12 months.

The past six weeks have seen expectations for a 0/25/50 bps cut at the 18 Sep FOMC move significantly from 36%/58%/6% to 0%/50%/50%. The change in sentiment has been reflected in the performance of the iEdge S-REIT Index, which has produced a total return of 5.7% in 2H24 to August 13, a partial but notable recovery from the 11.4% decline in total return observed in 1H24. 

The trusts of the S-REIT Sector are tabled below, and sort by the most traded by average daily turnover (ADT) this year. Below the table are a number of observations on the recent flows and performances.  

Trust	Code	Mkt Cap S$M	YTD NIF S$M	1H24 NIF S$M	2H24 to 13 Aug NIF S$M	YTD NRF S$M	1H24 NRF S$M	2H24 to 13 Aug NRF S$M	YTD TR%	1H24 TR%	2H24 to 13 Aug TR%	P/B (x)	5-yr Avg P/B (x)
CapLand IntCom T	C38U	14,143	-19.8	-40.1	20.3	-34.1	4.8	-39.0	5	-1	6	0.99	1.00
CapLand Ascendas REIT	A17U	11,784	-131.0	-154.1	23.1	127.1	143.8	-16.7	-6	-13	8	1.15	1.25
Mapletree Log Tr	M44U	6,420	-250.2	-237.6	-12.6	248.9	233.1	15.9	-23	-24	1	0.86	1.23
Mapletree PanAsia Com Tr	N2IU	6,519	-154.7	-181.8	27.1	137.2	122.2	15.0	-17	-20	3	0.69	1.06
Mapletree Ind Tr	ME8U	6,351	-102.3	-84.3	-18.0	62.9	58.0	4.9	-7	-13	8	1.20	1.43
Frasers L&C Tr	BUOU	3,758	-72.7	-62.6	-10.1	80.2	84.5	-4.3	-10	-14	5	0.86	1.14
Keppel DC REIT	AJBU	3,550	-15.5	-50.2	34.7	11.1	45.2	-34.1	11	-5	17	1.50	1.79
Suntec REIT	T82U	3,467	10.1	-22.2	32.3	-10.5	22.5	-33.1	1	-12	15	0.54	0.67
Frasers Cpt Tr	J69U	4,072	-9.1	-2.5	-6.6	19.2	21.3	-2.0	2	-3	6	0.99	1.03
Keppel REIT	K71U	3,207	-22.4	-20.1	-2.3	30.8	26.8	4.0	-4	-7	4	0.61	0.74
CapLand Ascott T #	HMN	3,256	-74.5	-50.1	-24.4	69.3	48.1	21.2	-8	-9	1	0.69	0.78
ESR-LOGOS REIT	J91U	1,998	-9.7	-2.0	-7.7	6.7	2.3	4.3	-12	-12	0	0.75	0.90
Lendlease REIT	JYEU	1,283	-19.7	-17.2	-2.5	18.6	13.9	4.7	-10	-10	0	0.58	0.78
CapLand India T *	CY6U	1,461	-6.8	-6.9	0.1	6.9	7.1	-0.2	-2	-12	11	0.95	1.16
DigiCore REIT USD	DCRU	999	5.6	4.8	0.8	0.0	0.5	-0.4	-5	-6	1	0.82	0.83
CapLand China T	AU8U	1,099	-54.6	-45.0	-9.6	56.3	46.3	10.0	-25	-25	1	0.52	0.75
ParkwayLife REIT	C2PU	2,160	-28.7	-24.0	-4.7	25.2	22.3	2.9	1	-3	4	1.52	1.84
CDL HTrust #	J85	1,084	-24.7	-14.5	-10.3	24.6	14.9	9.7	-17	-12	-6	0.58	0.85
AIMS APAC REIT	O5RU	1,022	-3.2	-4.6	1.4	3.7	4.7	-0.9	2	0	3	0.71	0.80
Kep Pac Oak REITUSD	CMOU	297	-15.1	-15.6	0.6	15.3	16.1	-0.7	-43	-63	56	0.30	0.71
Prime US REITUSD	OXMU	315	-3.8	-2.7	-1.2	4.9	3.5	1.5	-15	-44	51	0.33	0.71
Cromwell REIT EUR	CWBU	1,147	-8.3	-4.9	-3.4	9.5	6.1	3.4	4	4	0	0.64	0.80
Far East H Trust #	Q5T	1,217	-10.0	-7.6	-2.4	9.2	6.9	2.4	-3	-4	1	0.66	0.71
PARAGON REIT	SK6U	2,501	5.7	4.5	1.3	-5.1	-3.7	-1.4	3	0	3	0.84	0.89
StarhillGbl REIT	P40U	1,064	-5.9	-4.6	-1.3	4.9	3.9	1.0	-4	-4	1	0.62	0.66
OUEREIT	TS0U	1,483	-1.7	-2.4	0.7	1.3	2.7	-1.4	2	-5	7	0.42	0.57
ManulifeREIT USD	BTOU	179	1.6	0.4	1.1	-1.2	-0.1	-1.2	-5	-18	16	0.22	0.73
ARA H Trust USD #	XZL	177	43.5	-1.4	44.9	-43.5	1.4	-44.9	-19	1	-20	0.33	0.61
Sasseur REIT	CRPU	847	-3.0	-2.0	-1.0	3.5	2.2	1.3	1	1	1	0.80	0.87
Daiwa House Log Tr	DHLU	408	-6.4	-3.2	-3.3	6.4	3.3	3.1	-7	-9	3	0.74	0.79
First REIT	AW9U	501	-2.9	-0.8	-2.1	2.8	0.6	2.2	-3	-3	0	0.80	0.66
Frasers H Trust #	ACV	819	-11.2	-8.7	-2.5	11.1	8.6	2.5	-12	-14	2	0.64	0.75
Utd Hampshire REIT USD	ODBU	332	-5.2	-4.4	-0.8	5.1	4.3	0.8	-11	-16	6	0.58	0.72
IREIT Global SGD	UD1U	410	-3.3	-2.9	-0.4	3.3	2.9	0.4	-22	-28	9	0.53	0.75
Sabana REIT	M1GU	383	2.4	2.0	0.4	-2.3	-1.9	-0.4	-10	-16	7	0.66	0.77
Elite UK REIT GBP	MXNU	263	-3.8	-2.5	-1.2	3.8	2.5	1.2	0	-8	9	0.65	0.89
Lippo Malls Tr	D5IU	154	0.6	0.2	0.4	-0.6	-0.3	-0.3	18	-18	43	0.23	0.33
BHG Retail REIT	BMGU	260	0.2	0.1	0.1	-0.2	-0.1	-0.1	8	6	2	0.69	0.66
Dasin Retail Tr *	CEDU	18	-0.1	-0.1	0.0	0.1	0.1	0.0	-60	-56	-8	0.00	0.33
Total		90,408	-1,011	-1,071	61	913	981	-69
Average									-8	-13	7	0.70	0.87

Comparing the past six weeks to 1H24, there have been some shifts in flows or performances within the Sector:

• CapitaLand Integrated Commercial Trust (CICT) has reversed its decline in 1H24, with a 6% total return over the past 6 weeks. The six weeks have also seen retail net sellers of the REIT, while institutions have reversed 50% of the net institutional outflow in 1H24. CICT’s 0.99x P/B ratio has also edged close to the five-year average of 1.00x. 
   
• Each maintaining similar market capitalisations in the vicinity of S$6 billion, the trio of Mapletree REITs have seen less (more) net institutional outflow and less (more) net retail inflow the more defensive (weaker) the REIT performance this year. Among the trio, Mapletree Pan Asia Commercial Trust which maintains the highest beta of the trio, has seen institutions reverse 15% of the 1H24 net outflow over the past six weeks. 
   
• Keppel DC REIT has reversed 70% of the 1H24 net institutional outflow over the past six weeks. Its 17% total return since 1H24 has also seen the REIT reverse its 1H24 declines, which has also seen retail reverse 75% of their net buying in 1H24.  
   
• Suntec REIT has more than reversed the 1H24 net institutional outflow over the past six weeks. Its 15% total return since 1H24 has also seen the REIT reverse its 12% decline in total return in 1H24, which has also seen retail more than reverse their net buying in 1H24.   
   
• Frasers Centrepoint Trust has reversed its 3% decline in 1H24 total return with a 6% total return over the past six weeks. Like CICT, the REIT is presently trading near book value and its five-year average P/B. Retail have reversed 10% of the net buying in 1H24, while institutions have stepped up net selling over the past six weeks.
   
• After ranking seventh by both measures in 1H24, CapitaLand Ascott Trust has attracted the most net selling by institutions and most net buying by retail over the past six weeks, while booking a marginal total return of 1%. 
   
• ParkwayLife REIT has reversed its 3% decline in 1H24 total return over the past six weeks with a 4% total return. While the pace of net selling by institutions has continued into the first six weeks of 2H24, the pace of net retail buying has marginally moderated. On the other hand, over the past six weeks, CDL Hospitality Trusts has seen the pace of both net selling by institutions and net buying by retail accelerate while the stapled trust has declined 6% in total return.
   
• AIMS APAC REIT has reversed 30% of the 1H24 net institutional outflow over the past six weeks. Its 3% total return since 1H24 has also seen the REIT reverse its 1H24 marginal decline of 0.2%, which has also seen retail reverse 20% of their net buying in 1H24.  
   
• OUE REIT has reversed 30% of the 1H24 net institutional outflow over the past six weeks. Its 7% total return since 1H24 has also seen the REIT reverse its 1H24 decline, which has also seen retail reverse 50% of their net buying in 1H24.  
   
• Elite UK REIT has reversed its 1H24 decline in total return over the past six weeks with an 9% total return. While the pace of net selling by institutions has notched higher into the first six weeks of 2H24, the pace of net retail buying has also increased at the same pace. Cromwell European REIT has seen the same flow trend, however, has seen a more flat 0.3% total return over the last six weeks. Both REITs also maintain very similar trailing distribution yields in the vicinity of 10% and are both trading at P/Bs that are around 20-25% below 5-year average P/Bs.  

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Originally Posted August 14, 2024 – S-REIT Overview: Recent Investment Flow & Value Investing Trends