To The Moon

Questions from Michelle:

Can we ask Kenny if this new 2 indices might boost the SREIT index because many of the components are the same?

Ans:

There are 16 small and mid-cap REITs in the new indices. The $LION-PHILLIP S-REIT(CLR.SI)$ iEdge REIT index and $NikkoAM-STC Asia REIT(CFA.SI)$ FTSE ST REIT index are heavily weighted in big cap REITs such as $CapLand IntCom T(C38U.SI)$ , $CapLand Ascendas REIT(A17U.SI)$ , $Mapletree Ind Tr(ME8U.SI)$ , $Mapletree Log Tr(M44U.SI)$ , $Mapletree PanAsia Com Tr(N2IU.SI)$ , $Keppel DC Reit(AJBU.SI)$ , $Frasers Cpt Tr(J69U.SI)$ , and $Frasers L&C Tr(BUOU.SI)$ .

Is there any chance investors might shift from the S-REIT index into these new indices?

Ans:

Not now because there are no ETFs launched yet.

The launch of the iEdge Singapore Next 50 indices marks a new chapter for the mid-cap segment of the market. Can you provide your analysis of how S-REITs are positioned within these new benchmarks and why they have such a significant representation?

Ans: S-REITs represent 16 of the 50 constituents, accounting for around 44% of the iEdge Singapore Next 50 Index by weight. This prominence reflects their importance in Singapore’s market, stable business model, and investor demand for defensive, income-generating assets. It also highlights Singapore's reputation as Asia’s REIT hub, and mid-cap S-REITs especially fit the liquidity and capitalization criteria for index inclusion.

How will being a constituent of these new indices affect a REIT's liquidity and valuation? Do you anticipate this will attract new capital flows, and from what type of investors (e.g., institutional, retail, or passive funds)?

Ans: Index inclusion tends to improve liquidity and valuation due to higher visibility, eligibility for index-linked ETFs, and likely capital flows from passive and institutional investors seeking diversified mid-cap exposure. This trend historically attracts new capital from both retail and institutional players, given the lower correlation and new sector exposure compared to the STI.

Do you think these new indices might boost the overall S-REIT index, given that many of the components are the same?

Ans: Given significant overlap, positive re-rating and flows into these new indices could spill into the broader S-REIT index, supporting prices and narrowing performance gaps. More investor attention and fund inflows in the mid-cap space often benefit all segment indices by enhancing sector sentiment.

REIT managers will have clear, measurable targets for index inclusion or retention, motivating them to engage more actively with investors and transparently demonstrate performance improvements. This drives better communication and accountability within the REIT sector.

Do you believe the launch of these new indices will lead to the creation of new investment products, such as S-REIT-focused ETFs or index funds, that track this specific segment of the market? What are the key benefits and potential risks for retail investors considering these products?

Ans: Yes, new ETFs and index funds tracking these indices are likely. Benefits include diversification, lower individual-stock risk, and easier access for retail investors.

Risks: management fees, market risk from high REIT concentration, and limited upside or more volatile if sector or rate cycles turn adverse or the economy turns bad. During an economic downturn, blue-chip stocks hold better than small and mid-cap stocks.

How do you see the performance of the iEdge Singapore Next 50 indices compared to the iEdge S-REIT Index or the FTSE ST REIT Index? 

Ans: Historically, the iEdge Singapore Next 50 index has returned 5% annually over 10 years, lower than the S-REIT and FTSE ST REIT indices (which are closely correlated and generally outperform Next 50 due to blue-chip exposure). However, year-to-date (2025), Next 50 indices have outperformed STI (25% vs 19%), driven by REIT strength in a falling rate environment.

Fed Rate Cut Impact

The U.S. Federal Reserve recently made a rate cut of 25 basis points. How do you see this impacting the Singapore REIT sector? 

Ans: The 25bps Fed cut lowers borrowing costs for REITs, improves debt serviceability, boosts DPU, and makes yields more competitive. This is expected to increase property values, investor demand, and overall sector performance as the cost of capital falls.

Which specific S-REITs are positioned to benefit the most from this rate cut, and why? Are we looking at REITs with high gearing, significant floating-rate debt, or those in specific sub-sectors like industrial or retail?

Ans:

REITs with higher gearing, more floating-rate debt, or imminent refinancing needs (especially industrial and retail S-REITs) benefit most from rate cuts.

Most REITs have a weighted average debt maturity (WADM) exceeding two years. Those with substantial Singapore dollar borrowings will experience greater interest cost savings, as SORA declines more rapidly than US interest rates.

With a falling interest rate environment, many Singapore REITs are actively refinancing their debt. How significant is this trend, and how will it translate to improved Distribution Per Unit (DPU) for investors? 

Ans: Refinancing at lower rates is significant for S-REITs—it immediately improves interest coverage and frees up distributable cash, translating into higher DPU over time.

REITs need to carefully assess whether the potential interest savings from refinancing outweigh the costs associated with early loan termination.

How quickly do you expect to see these benefits reflected in reported DPU?

Ans: Benefits generally begin to reflect in the next quarterly DPU reports after refinancing is executed, and become more pronounced as legacy high-rate debt rolls over in successive periods.

The S-REIT index has shown a recovery, but it still lags the broader Straits Times Index (STI). What factors do you think are driving this divergence, and do you expect the performance gap to close in the near term?

Ans: The S-REIT index is currently underperforming the STI, mainly due to past rate hikes and stronger gains in bank and industrial stocks. With US 10-year yields still elevated above 4%, REITs are paused. If risk-free rates decline and REITs deliver DPU growth, this performance gap could narrow

Beyond the general interest rate environment, how are different sub-sectors (e.g., retail, office, industrial, hospitality) performing? Are there specific sub-sectors you believe are better positioned for future growth and resilience?

Ans: Industrial and logistics REITs remain strong, supported by resilient demand and limited supply. Hospitality REITs underperformed due to lower DPU, while retail and office REITs in Singapore have been resilient. Data center REITs should benefit from expanding AI adoption, and more acquisitions are expected as financing becomes more attractive and valuations improve.

US commercial office properties are likely to rebound as lower borrowing costs make financing more attractive, which could lead to an uptick in transaction activity across the sector.

Centurion Accommodation REIT IPO

Centurion Accommodation REIT (CAREIT) is positioning itself as Singapore's first pure-play accommodation REIT. What are your thoughts on this unique focus on purpose-built worker and student accommodation? What are the key pros and cons of this asset class?

Ans: CAREIT offers exposure to purpose-built worker and student accommodation—a resilient niche with stable occupancy and defensive demand. Pros: strong rental growth, stable cash flows, supply-demand advantage. Cons: regulatory risk, less diversification, and exposure to economic, education, or migrant trends.

The IPO is looking to raise over S$771.1 million and projects highly attractive distribution yields of 7.47% for 2026 and 8.11% for 2027. How does this compare to the current average yields of other S-REITs?

Ans: CAREIT’s forecast 7.47% (2026) and 8.11% (2027) yields are higher than many S-REITs (sector average around 5–6%). The premium reflects niche risk and growth strategy.

CAREIT's initial portfolio includes properties in Singapore, the UK, and Australia, and is backed by a strong sponsor, Centurion Corporation. How important is the sponsor's backing, and what are the key risks associated with the portfolio's geographical diversification?

Ans: Sponsor strength (Centurion Corp) provides operational, financial, and acquisition support—crucial for trust in asset management, pipeline, and capital access. Risks include macroeconomic fluctuations across Singapore, UK, and Australia, and regulatory changes in the accommodation sector. Geographic diversification helps manage local shocks but adds FX and political risk.

Considering the combined impact of the new indices, the Fed rate cut, and the Centurion Accommodation REIT IPO, how should investors strategically position their investment portfolio to capitalize on these developments over the next 12 to 18 months?

Ans: Diversify with new mid-cap and REIT-focused SGX index ETFs, overweight S-REITs for yield and refinancing upside from Fed rate cuts, and add niche high-yield options like CAREIT to capture growth, income, and recovery in Singapore’s evolving market.

Kenny Loh is a distinguished Wealth Advisory Director with a specialization in holistic investment planning and estate management. He excels in assisting clients to grow their investment capital and establish passive income streams for retirement. Kenny also facilitates tax-efficient portfolio transfers to beneficiaries, ensuring tax-efficient capital appreciation through risk mitigation approaches and optimized wealth transfer through strategic asset structuring.

In addition to his advisory role, Kenny is an esteemed SGX Academy trainer specializing in S-REIT investing and regularly shares his insights on MoneyFM 89.3. He holds the titles of Certified Estate & Legacy Planning Consultant and CERTIFIED FINANCIAL PLANNER (CFP).

With over a decade of experience in holistic estate planning, Kenny employs a unique “3-in-1 Will, LPA, and Standby Trust” solution to address clients’ social considerations, legal obligations, emotional needs, and family harmony. He holds double master’s degrees in Business Administration and Electrical Engineering, and is an Associate Estate Planning Practitioner (AEPP), a designation jointly awarded by The Society of Will Writers & Estate Planning Practitioners (SWWEPP) of the United Kingdom and Estate Planning Practitioner Limited (EPPL), the accreditation body for Asia.

You can join his Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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