Focus on S-Reits’ resilience against rising rates

AS AT Oct 19, four S-Reits have reported business updates for the latest quarter ended Sep 30, 2023. Another 26 S-Reits and property trusts have also confirmed the dates of their releases in the coming weeks.

Sabana Industrial Reit (Sabana Reit) was the first to kick off this earnings season for the sector. It reported total portfolio occupancy of 91.8 per cent in the third quarter of 2023, down 2.1 per cent from Q2 2023. Its portfolio rental reversions, which continued to remain positive since Q1 2021, was at 16.8 per cent in the latest quarter.

On the capital management front, Sabana Reit’s aggregate leverage grew slightly to 33.8 per cent as at Sep 30 compared to 32.5 per cent as at Jun 30. The amount of borrowings on fixed rates was at 78.5 per cent, down from 82.2 per cent in the previous period.

Sabana Reit’s interim manager noted that since the extraordinary general meeting on Aug 7 to internalise the Reit management function, its primary focus has been on motivating staff, stabilising the portfolio and executing asset enhancement initiatives.

During the past week, the Keppel group of Reits also reported business updates for the quarter ended September. All three Reits saw lower distributable income on the back of rising finance costs.

Keppel DC Reit (KDCReit) saw distributable income retreat 6.5 per cent year on year, leading to a 3.6 per cent decline in distribution per unit. This also saw KDCReit’s average cost of debt rise by 20 basis points (bps) to 3.5 per cent and aggregate leverage increase by 90bps to 37.2 per cent from Jun 30, 2023.

Keppel Pacific Oak US Reit ’s Q3 2023 distributable income was also down 10.7 per cent year on year to US$13.1 million due to higher financing cost as a result of rising interest rates. Its average cost of debt increased from 3.89 per cent as at Jun 30, to 3.95 per cent as at Sep 30, with aggregate leverage rising 0.70 bps to 39.1 per cent across the same period.

Keppel Reit ’s 9M 2023 distributable income from operations was 10.1 per cent lower due to increased borrowing costs, and higher property tax and utility costs. Its aggregate leverage of 39.5 per cent as at Sep 30 is 30 bps above Jun 30 levels, while all-in interest rate rose slightly, by 10 bps to 2.85 per cent per annum.

Looking ahead, much focus will continue to be on the sector’s balance sheet strengths and the impact of rising finance costs. SGX RESEARCH

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The writer is a research analyst at SGX. For more research and information on Singapore’s Reit sector, visit sgx.com/research-education/sectors for the monthly S-Reits & Property Trusts Chartbook.

Source: SGX Research S-Reits & Property Trusts Chartbook.