Upcoming Q3 results will be pivotal following one of the worst market routs since S-Reits’ inception

AMID one of the worst sell-offs in the 20-year history of Singapore-listed real estate investment trusts (S-Reits), market watchers are paying special attention as S-Reits start to release their results and quarterly business updates for the period ended Sep 30.

Gabriel Yap, chairman of investment firm GCP Global, noted that the FTSE ST Real Estate Investment Trusts (Reits) Index has tumbled over 20 per cent since April.

“This is the second-worst correction for S-Reits, not including the Global Financial Crisis of 2007-2009, and the pandemic sell-off of March 2020,” he said. “We are finally getting into a very ‘blood on the streets’ situation for Reit investors and traders.”

The veteran Reit investor added that the current correction – now into its sixth month – is the third longest in S-Reit history, with the last interest rate upcycle sell-off of 2018 lasting 10 months, and the 2013 Taper Tantrum correction stretching nine months.

As the S-Reits start to announce their results for the third quarter over the coming weeks, Yap said he will keep an eye on “metrics that indicate the robustness of the balance sheet and the resiliency of the Reit to go through the interest-rate upcycle”.

These include looking at a Reit’s cost of funds, interest cover, gearing ratio, proportion of loans expiring in the second half 2022 and 2023, extent of currency hedging, as well as the type of currencies in which the loans were taken out, he added.

Apart from the impact of rising interest rates, RHB analyst Vijay Natarajan said he would also pay close attention to a couple of other factors: One is net property income (NPI) margins, and any potential margin compression from inflationary pressures and rising utility charges; another would be the pricing power of the Reit in terms of rent reversions and occupancy trends, he said.

“In Singapore, we will be watching industrial Reits’ operating metrics and outlook to get a better picture of the strength of demand and supply, and the impact from the manufacturing slowdown seen in latest monthly data,” he said.

“This, in our view, could also be a bellwether for the economic outlook ahead.”

Sabana Industrial Reit , the first S-Reit to announce its results for the period ended September, will give investors a taste of what is to come.

In an interim business update for Q3 on Wednesday (Oct 19), it reported an increase in portfolio occupancy to 89.1 per cent as at end September, up from 88.2 per cent in the preceding quarter. The Reit manager said this was a new high since Q3 2017.

The Singapore-focused industrial Reit managed to achieve positive rental reversion of 10.2 per cent in the latest quarter, slipping from 17.4 per cent in Q2.

Sabana Reit’s aggregate leverage edged up 0.3 percentage point to 33.7 per cent as at end September, while its average all-in financing cost climbed 42 basis points to 3.77 per cent.

On a positive note, some 73.3 per cent of its borrowings are hedged to fixed interest rates, with no refinancing due until 2024.

The next results announcement investors will be looking out for this week will be from CapitaLand Integrated Commercial Trust (CICT) – Singapore’s first and largest Reit – which is to release its Q3 business update this Friday (Oct 21).

The following week will bring the trio of Mapletree Reits – Mapletree Logistics Trust (MLT) , Mapletree Industrial Trust (Mint) and Mapletree Pan Asia Commercial Trust (MPACT) – into focus.

MLT and Mint will report their results for H1 FY2022/2023 on Oct 25 and Oct 26, respectively; MPACT will do so for its H1 results on Oct 27– its first such announcement post-merger.

Oct 26 is shaping up to be a busy day for the market, with Frasers Centrepoint Trust (FCT) reporting its results for FY2022 and Aims Apac Reit announcing its H1 FY2022 results.

Other full-year results announcements to look out for include Frasers Hospitality Trust (FHT) – fresh from its failed privatisation attempt – on Nov 4, and Frasers Logistics & Commercial Trust (FLCT) on Nov 10.

Bringing up the rear for the S-Reits reporting season will be several of the foreign Reits, including Manulife US Reit (Nov 2), ARA US Hospitality Trust (Nov 4), Prime US Reit (Nov 8) and United Hampshire US Reit (Nov 9).

“For Reits in the overseas market, we will be particularly monitoring the office Reits in US and Europe in terms of return-to-office trends and physical occupancy to assess potential leasing impact from the evolving hybrid working model,” said RHB’s Natarajan.

GCP Global’s Yap added: “Recent events – such as the ‘Truss, no trust anymore’ fiasco in the United Kingdom, continued strength of the US dollar and historical lows for the Japanese yen – opens up the gate for foreign currency blowouts that you saw during the Asian Financial Crisis in 1997-1998.

“This time, the danger zone is those Reits whose assets are in this ‘weak currency basis’.”