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iEdge S-Reit Index Weekly Review 22 Jan 24

Good day everyone. Hope you had a great weekend.

Recently I have been looking at the Hang Seng Index and Hang Seng Tech Index. The daily drops are significant and it reminds me of the saying “never go against the trend”. This is something I would want to apply to in my quest for free coffee from dividends!

Let us take a look at the recent notable happenings for SREITs.

Singapore Real Estate Investment Trust (S-REIT) Sector Developments for the week

Frasers Centrepoin­t Trust: Kicked off the financial reporting season for S-REITs. In its previous financial year, it reported record-high gross revenue and net property income. However, there was a slight decrease in distribution to unitholders due to higher interest expenses​​.

Manulife US REIT: Reported a decline in the valuation of all its 10 properties. The overall portfolio valuation declined by 8.0%​​.

Lippo Malls Indonesia Retail Trust: Fitch downgraded the trust’s rating to ‘C’ following an announcement about a tender offer for its senior unsecured notes. The trust also saw an increase in its estimated aggregate leverage ratio to 44.3%​​.

Keppel REIT: Announced that KR Ginza II in Tokyo achieved 100% occupancy​​.

Mapletree Industrial Trust: Reported an interested person transaction related to the provision of a unitholder’s loan to a joint venture company​​.

Sabana Industrial REIT: Faced several internal issues, including manager disputes and receipt of a requisition notice from 10% of unitholders​​.

Landlease Global Commercial REIT: Announced the voluntary liquidation of a subsidiary company, which is not expected to materially impact the net tangible assets or earnings per share of the REIT Group​​.

AIMS APAC REIT: Scheduled to announce its business update for the third quarter ended 31 December 2023 on 31 January 2024​​.

REIT Downgrades: More than half a dozen REITs received downgrades at the start of 2024, impacting their stock performance and investor sentiment​​.

SREIT Index Blue US 10 YR Treasury Yellow

In the chart above, we can see that the inverse correlation between the iEdge S-Reit Index (blue) and US 10-Year Treasury Bond Yield (orange) continues. This means that when the US 10-Year Treasury Bond Yield goes down, iEdge S-Reit Index usually goes up.

The iEdge S-Reit Index has weaken further as the US 10-Year Treasury Bond Yield rises. Recent US unemployment rate of 3.7% suggests a resilience labor market, lowering sentiment expectation of an interest rate cut by the US Feds.

The index is now below the previous support region and if it fails to break above the support turned resistance, we may be seeing a lower consolidation range. The US 10-Year Treasury Bond Yield is now above 4%.

Considering that S-REITs are sensitive to the US interest rate, it is crucial to be informed of developments in the US.

Despite the bearish pressure on the S-REITs, we can see differing performance. S-REITs with lower gearing levels and active debt reduction measures such as CapitaLand Ascendas REITMapletree Industrial Trust and Frasers Centrepoint Trust continue to show resilience compared to other S-REITs that are in more challenging situations.

I believe that we need to be selective in our choice of S-REITs. A common mistake would be to be hyper focused on dividend yields. A higher than normal dividend yield may be because of the depression of stock price or reflection of a higher risk.

The recent downgrades of various S-REITs should not come as a surprise. We need to be mindful that economic conditions remain tight. No interest rate cut has happened. As loans are due to be renewed, the higher interest rate will affect the performance of the S-REITs.

Meanwhile, I continue to invest into CSOP iEdge SREIT ETF weekly so as to maintain exposure to the market.

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