REIT WATCH

Singapore office S-Reits poised to benefit from positive rental momentum

SINGAPORE'S Central Business District (CBD) saw Grade A office rents record the fastest quarterly growth since rents turned around in Q2 2021, according to JLL Singapore in a recent report.

Grade A office rents in the CBD rose 2.3 per cent to S$10.46 per square foot (psf) per month (pm) in the latest quarter, up from Q4 2021's S$10.23. Rental rates have recovered by 6.9 per cent from its recent lows in Q1 2021.

Office Reits may also be poised to benefit from a growth in demand for office space as up to 75 per cent of office workers are allowed to return to their workplaces, even as hybrid working continues.

Listed on SGX are 5 S-Reits with Singapore office properties in their portfolios. They are, Keppel Reit K71U which is a pure-play office S-Reit, and diversified S-Reits CapitaLand Integrated Commercial Trust (CICT), C38U Suntec Reit, T82U Mapletree Commercial Trust (MCT), N2IU and OUE Commercial Reit (OUE C-Reit). TS0U Keppel Reit in FY21 had a tenant retention rate of 62 per cent and noted that a majority of new and expansion leases were in Singapore.

Its weighted average signing rent for Singapore office leases was approximately S$10.56 psf pm.

Building valuations for Marina Bay Financial Centre Towers 1 & 2, One Raffles Quay and Keppel Bay Tower increased due to higher rental rates.

OUE C-Reit which has a portfolio of 3 office properties in Singapore's CBD noted in its FY21 results that average passing rents of Singapore office properties at Dec 2021 were higher year on year, with OUE Bayfront hitting a high of S$12.49 psf due to the successful renewal of an anchor tenant. The Reit expects positive leasing momentum to continue in 2022, supported by the technology sector amid a limited supply pipeline.

CICT recently announced its proposed acquisition of 70 per cent interest in 79 Robinson Road which has a building occupancy rate of 92.9 per cent. The acquisition is expected to offer pro forma annualised net property income yield of 4 per cent, distribution per unit accretion of 2.9 per cent, and is expected to complete in Q2 2022.

Across the broader S-Reits sector, S-Reits demonstrated resiliency amid the backdrop of rising inflation and a rate hike cycle with the iEdge S-Reit Index posting 1.3 per cent total returns in Q1 2022, outperforming the average decline of 4.9 per cent across global Reit hubs.

Despite rising interest rates, S-Reits have an average distribution yield of 6.3 per cent, around 400 bps spread over Singapore's 10-year government bond yields. The sector has an average gearing ratio of about 37 per cent (current regulatory ceiling is 50 per cent) and has an average 75 per cent of their borrowings pegged at fixed rates (entered directly in fixed rates or hedged through floating-to-fixed interest rate swaps).

The top 5 performing S-Reits and property trusts in Q1 2022 averaged 14.1 per cent total returns, outperforming STI's 9.6 per cent, and are mainly from the hospitality and office sub-segments. They are: Suntec Reit (+17.6 per cent), Frasers Hospitality Trust ACV (+15.1 per cent), Far East Hospitality Trust Q5T (+13.1 per cent), CDL Hospitality Trusts J85 (+13.0 per cent), and Ascott Residence Trust HMN (+11.5 per cent).

Drivers that potentially drove the sub-segments were the continued reopening theme and relaxation of Covid measures across Singapore and the region, as well as the positive momentum in office rental rates. SGX RESEARCH

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.

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