S-REITs With Offshore Office Assets

S-REITs With Offshore Office Assets See Positive Rental Reversions

SINGAPORE – Singapore-listed real estate investment trusts (S-REITs) that own office and industrial properties, particularly in offshore markets, could have the best rental recovery prospects once the health crisis is surmounted, reported The Business Times on Monday evening (30 August, SGT).

In fact, S-REITs recorded mostly positive rental reversions for both types of assets for their most recent financial statements that ended in 30 June 2021. For example, Cromwell E-Reit and other S-REITs with offshore office properties registered higher rental reversions, as Singapore faced tighter COVID-19 restrictions in May.

“Rental reversions reported by (Singapore) office REITs were mixed, but skewed more to the positive side,” wrote Maybank Kim Eng’s Analyst Chua Su Tye in a note published on 18 August.

In particular, Suntec Real Estate Invest Trust (Suntec REIT) witnessed a positive rental reversion of 1 percent for its office properties in Singapore for the first half of the year. The trust also expects positive rental reversion for the whole of the year.

While Suntec REIT’s office rental reversion here is okay, it was substantially lower than rental reversions of offshore office assets. Notably, the biggest gainers were Prime US REIT and Cromwell European REIT, which respectively witnessed robust office rental reversions of 9.3 percent and 13.7 percent for the 1st half of the year.

However, OCBC’s Analyst Chu Peng stated in a sector update published on 19 August that “uncertainties over longer-term work-from-home (WFH) trends continue to cloud the office sector’s outlook.”

Nonetheless, the pace of COVID-19 vaccinations in different nations provides clues on how fast staff would return to their workplace, she explained.

“In the US, property consultant firm Cushman & Wakefield cited commercial real estate platform VTS that tour activity of office space has increased more than 80 percent from the start of the year to May. Furthermore, more companies are starting to sign longer-term leases again, as approximately 75 percent of leases signed have tenures of 4 years or more,” noted Chu.

Meanwhile, RHB Analysts Vijay Natarajan and Loong Kok Wen are still bullish on quality office properties.

“Although there will be a greater propensity for employees to work from home more regularly (for health and safety reasons) office properties are here to stay,” said the analysts in a report published on 23 August.

“Among all the sub-sectors, the office segment is second-best, preferred next only to the resilient industrial segment,” they said, adding that their top picks in the office REITs subsector are Suntec REIT and Prime US REIT.

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