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[SINGAPORE] Almost all Singapore-listed real estate investment trusts, or S-Reits, ended in the red on Wednesday (Apr 9), with US office and China-exposed S-Reits among the top losers.

The share movement comes after US tariffs, which include a 104 per cent tax on many Chinese goods, took effect at 12.01 am US time on Wednesday. The “Liberation Day” taxes were announced by US President Donald Trump on Apr 2.

Manulife US Reit had the biggest decline among S-Reits, falling 10.2 per cent to end at US$0.053. Two other US office Reit counters were among the top 10 decliners. They were Prime US Reit, which shed 5.9 per cent, as well as Keppel Pacific Oak US Reit which fell 5.1 per cent.

S-Reits which held significant assets in China were not spared either. Sasseur Reit, which owns four outlet malls in China, slid 9.8 per cent. CapitaLand China Trust, whose portfolio mostly comprises shopping malls but also includes business parks and logistics parks, declined 8 per cent.

Industrial S-Reits were also hard hit, with ESR Reit, which has significant exposure across Asian markets, sliding 9.1 per cent; and Frasers Logistics and Commercial Trust, which has most of its assets in Australia and Europe, falling 5.4 per cent. Mapletree Logistics Trust (MLT), which has significant exposure to China, fell 8.7 per cent to end at S$1.05.

S-Reits still a ‘safe haven’

Analysts attributed Wednesday’s sell-off to short-term market volatility, but maintained that the sector remains a “safe haven” for investors seeking stability amid the market turbulence in the longer run.

An OCBC Investment Research report on Tuesday noted that S-Reits held up relatively better than broader indices following news of the tariffs.

The FTSE ST All-Share Reit Index posted total returns of minus 5.2 per cent over three trading days from Apr 3 to Apr 7, outperforming the Straits Times Index, which posted total returns of minus 10.1 per cent over the same period.

In a reversal from the past year, institutional investors have also become net buyers of S-Reits in four out of the last five trading weeks.

OCBC said that the expectation of more interest rate cuts by the US Federal Reserve triggered investors to pick S-Reits, which are seen as more defensive options, over banks. Bank earnings are expected to fall with interest rate cuts.

Similarly, Derek Tan, the head of property research for Singapore at DBS Group Research, said that investors are expected to increase their holdings in S-Reit holdings, which he described as “tactical safe havens”.

Winners and losers 

While prolonged tariffs could reduce consumer and business sentiment, posing a risk to the sector, Tan said that “resilient subsectors” such as suburban retail, healthcare and industrial S-Reits are likely to hold.

However, Carmen Lee, head of OCBC investment research, felt that industrial assets could be impacted negatively if trades slow down due to tariffs.

Nevertheless, Krishna Guha, an analyst at Maybank Securities, said that industrial S-Reits have relatively longer weighted average lease expiry (Wale) and may benefit from Singapore’s lower level of tariffs as well as potential stimulus from China. The Wale measures the average time remaining on all the leases within a Reit’s portfolio.

Maybank’s preferred picks are CapitaLand Integrated Commercial Trust (CICT), CapitaLand Ascendas Reit, CapitaLand Ascott Trust, MLT, OUE Reit, Parkway Life Reit.

OCBC said that other subsectors that could be negatively affected include hospitality S-Reits, which may take a hit if corporates cut back on travel budgets in the wake of a recession. A reduction in consumer spending will also impact the gross turnover rent of the broader retail S-Reits.

Domestic-exposure preferred

In terms of geographic exposure, S-Reits with greater exposure to the US and Singapore are also preferred over those with exposure to Asian markets that will be more affected by the tariffs, said DBS in a research note.

The research team said it would prefer CICT, Mapletree Industrial Trust (MIT), Keppel Reit and Digital Core Reit over other S-Reits such as Daiwa House Logistics Trust and MLT.

Among those that are likely to underperform are S-Reits with exposure to China, particularly those with retail assets, said Darren Chan, senior research analyst at Phillip Securities Research.

“China is among the hardest hit by tariffs and escalating US-China tensions. These factors are expected to dampen cross-border retail activity and tourism,” said Chan.

Interest rate cuts to help S-Reits

The prospect of lower interest rates this year will also help S-Reits counter the negative effects of a looming recession, said analysts.

Vijay Natarajan, an analyst at RHB Singapore, said that the increasing likelihood of a recession could lead to higher vacancy rates and lower rental growth among S-Reits, reducing its top-line growth.

However, the impact on S-Reits could be mitigated if interest rates are reduced this year to counter inflationary pressures, added Natarajan. Like Tan, Natarajan flagged the healthcare, suburban retail and industrial sectors to outperform in this scenario.

Besides lower interest rates, government support for businesses affected by the tariffs, which are expected later this year, will “cushion” the decline in S-Reits’ top line when they refinance their loans, added Maybank’s Guha.