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iEdge S-Reit Index Weekly Review 8 Jan 24

Hey everyone! It’s a brand new year and may our dividend coffees be plentiful all year round.

Lots to update today. Besides our usual chart, I made a new addition to my dividend portfolio too. Can you guess which stock?

Firstly, let’s take a look at the notable happenings for the past week.

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

AIMS APAC REIT Master Lease Renewals: AIMS APAC REIT (AA REIT) announced the renewal of two master leases for its properties in Singapore, specifically with KWE-Kintetsu World Express (S) Pte Ltd at 7 Bulim Street. The new lease term is for five years, expiring on December 31, 2028, and was signed at a positive rental reversion over the expiring lease​​.

Keppel REIT’s New Tenancy and Valuation: Keppel REIT reported a new government tenant taking up two additional floors at 8 Chifley Square in Sydney. This move improved the occupancy by 9.7ppt quarter-over-quarter to 97.1%. Furthermore, the REIT’s valuation is considered attractive with a 2024 distribution yield of 6.1% and a price to net asset value (P/NAV) of 0.70x, which is a 30% discount to the NAV per share of S$1.31. The target price is set at S$1.17, indicating a 25% upside from its share price as of January 2, 2024​​.

Mapletree Logistics Trust Acquisition: Mapletree Logistics Trust (MLT), a logistics REIT with a portfolio spread across eight countries, announced the acquisition of a modern Grade A warehouse in Farukhnagar, Delhi, India. The acquisition cost is around S$14.5 million. As of September 30, 2023, MLT’s assets under management were valued at S$13.3 billion.

Performance Outlook for S-REITs: It was reported that S-REITs are expected to be net outperformers in 2024, with a preference towards retail S-REITs. However, it’s also mentioned that in the near term, S-REITs are approaching “overbought” territory, as evidenced by a 15% rise in the Singapore REITs index​​.

iEdge S-Reit Index (blue) US 10 YR Treasury Yield (orange)

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

I mentioned about adding dotted red lines in the previous review to bring attention to the possible support and resistance regions based on historical price action.

As you can see, the iEdge S-Reit Index did bounce back from the region, moving lower as the US 10-Year Treasury Bond Yield climbed.

I would be monitoring the US 10-Year Treasury Bond Yield as it is now at a crucial resistance region of 4%. Should it decisively rise further, we may see renewed downside pressure for the iEdge S-Reit Index.

The current price action is most likely sentimental in nature. The market seems to have scaled back their expectation of a major interest rate cut regime for 2024. This does not come as a surprise as I mentioned previously that until the interest rate cut really happens, we may continue to see volatility, likely influenced by speculations based on the US Feds comments and actions.

I think it is important for us to understand and remember that economic conditions will remain tight since no interest rate cut has actually happened. It is still business as usual for S-REITs. Debts need to be paid and refinancing must be done. We need to watch for gearing (the ratio of a REIT’s debt to its total assets or equity) levels. If it is too high, there will be less room for manoeuvring in the event of market condition worsening. 

I continue to lean towards prudence and caution.

I prefer S-REITs with lower gearing levels and active debt reduction measures. For example, CapitaLand Ascendas REITMapletree Industrial Trust and Frasers Centrepoint Trust are all below 40%.

While waiting for a pullback, I continue to invest into CSOP iEdge SREIT ETF weekly so as to maintain exposure to the market.

Portfolio Update

If you read my previous blog updates, you would know of my near miss with Keppel DC ReitI had my sights on it but missed the price and after that it climbed. It dipped recently and this time I managed to acquire it at $1.84. Yes, I know it is not ideal as previously it went below $1.8. However, I feel uncertain if we will see that level again so I went ahead. Historically, this S-REIT trades at a high premium to its P/B (Price/Book) and NAV (Net Asset Value) so at $1.84, I am already getting a good discount.
If things do get worse, the 48.3 million yuan (S$9.1 million) debt of the tenant of three Guangdong data centres (DCs) would have a negative impact on the distribution per unit (DPU) of about 0.655 cents. This is 6.4% of the REIT’s distribution for the previous financial year. China represents less than 10% of its revenue breakdown. I am ok to take the risk in view of this and furthermore, Data Centers are going to be in evermore demand as technologies grow.
And that’s it for the week! Uncle will see you next week and do hoop over to My Portfolio Page to see the latest updates!
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