Since debuting in the local stock market in 2002, real estate investment trusts (REITs) have grown to become one of the most popular investment vehicles in Singapore. Besides providing investors with steady dividends, they also provide exposure to the real estate sector at a fraction of the cost it takes to buy an actual property.
With that said, the local stock market operator, Singapore Exchange, recently released a report on the Singapore REIT (S-REIT) market for the first quarter of 2019. Here are the key findings in the report.
Net institutional inflows
There has been plenty of interest in S-REITs since last year. In the months of January, February, and March, there were net institutional inflows of S$82.7 million, S$42.7 million, and S$114.2 million, respectively. That brings the total sector’s inflows to S$239.6 million for the first quarter of 2019.
The SGX report said that investor interest in S-REITs could be due to a flight-to-safety mentality amid the uncertainty of the U.S.-Sino trade negotiations and volatile equity markets.
High average return
The large inflow of institutional money unsurprisingly caused strong performances in the S-REIT sector. In the first quarter of 2019, the top 20 best-performing S-REITs had an average return of 15.7%.
This brings their one-year, three-year, and five-year total returns to an impressive 10.6%, 37.9%, and 51.7%, respectively. As of the time of writing, these trusts still sport a reasonable average yield of 6.1%.
The top performers
The top performers of the quarter were Sasseur Real Estate Investment Trust (SGX: CRPU), CapitaLand Retail China Trust (SGX: AU8U), and Keppel-KBS US REIT (SGX: CMOU). The trio achieved a three-month return of 25.0%, 19.4%, and 18.2%, respectively.
The three top performers over a one-year period were Mapletree Commercial Trust (SGX: N2IU), Mapletree Logistics Trust (SGX: M44U), and Mapletree North Asia Trust. The trio of Mapletree-sponsored REITs achieved a one-year return of 27.2%, 26.2%, and 24.4%, respectively.
Fundamentals and outlook
The REIT outlook was boosted by the dovish signals from the U.S. Federal Reserve in its March 20 policy-setting meeting. Fed officials do not expect to raise rates this year. This marked a huge pivot from December, when Fed officials said they expected two rate hikes this year.
The absence of further rate hikes is a boost for REITs as they are highly leveraged vehicles and are sensitive to interest rate fluctuations.
The SGX report also noted that about 80% of the trusts have hedged at least 70% of their debt with fixed rates. This should further mitigate some of the impact should interest rates rise.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia own shares in Sasseur Real Estate Investment Trust. The Motley Fool Singapore recommends Singapore Exchange, CapitaLand Retail China Trust, Mapletree Industrial Trust, and Mapletree Commercial Trust.