Markets rallied following the Federal Reserve’s decision to hold benchmark interest rates steady at the Nov 1 meeting. This was the second consecutive meeting that saw the Fed hold the key funds rate in a target range between 5.25 and 5.5 per cent, and according to the CME Fed Watch Tool, probabilities of a no change in the next December meeting is at 90.4 per cent (as of mid-trading day Nov 9).

At the same time, the iEdge S-Reit Index gained 3.9 per cent through to Nov 8, bringing its total returns in the year-to-date to a decline of 5.5 per cent.

Within the index, some of the biggest gainers over the period were Manulife US Reit : BTOU 0%, Prime US Reit : OXMU 0%, Keppel Pacific Oak US Reit : CMOU 0%, Digital Core Reit : DCRU 0%, and Cromwell European Reit : CWBU 0%, averaging 40.6 per cent total returns.

Manulife US Reit in its operational updates for the third quarter FY23 updated that leasing and pipeline were gaining momentum. It recorded 24.2 per cent positive rental reversion with approximately 193,000 square feet (sq ft) leases executed in Q3FY23. Its portfolio occupancy was at 84.7 per cent, lower than the 85.1 per cent recorded at the end of Q2FY23, and higher than the average of US Class A offices at 82.3 per cent.

Manulife notes that the US office market remains soft but is seeing signs of bottoming with office attendance growing 8 per cent year-on-year as employers are issuing stricter return-to-office mandates. The Reit has assembled a sponsor package and has identified non-core assets for sale based on future return potential and capex requirements, to address its financial covenant breach, longer-term liquidity needs and provide financial flexibility. It updated that it is still in ongoing negotiations with its lenders and has since halted distributions for H1FY23. The Reit recorded 73.6 per cent total returns from Nov 1 through to Nov 8, bringing its decline for the year to date to 68.7 per cent.

Prime US Reit in its Q3FY23 business updates also reported that leasing for the quarter, at approximately 145,600 sq ft leases, is more than Q1FY23 and Q2FY23’s leases combined and sees good momentum going into Q4. Portfolio occupancy held stable at 85 per cent, slightly lower than the 85.6 per cent in the last quarter. Rental reversion in Q3 was negative 2 per cent, impacted predominantly by one lease, which was at a rate lower than prior short-term extension rate.

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Prime updated that 78 per cent of its total borrowings are fixed or hedged with over 60 per cent hedged through to 2026 and beyond. The Reit also updated that it is in active engagement with lenders in advance of Q3FY24 debt maturity. Prime recorded 69.6 per cent total returns from Nov 1 to Nov 8, bringing its decline for the year to date to 52.2 per cent.

Keppel Pacific Oak US Reit in its Q3FY23 business updates reported 91.4 per cent in portfolio committed occupancy, increasing from 90.8 per cent in the last quarter. It recorded negative rental reversion for the nine months of FY23, due to Spectrum’s renewal at one of the buildings where asking rents are significantly below in-place rents. Adjusted rental reversion excluding Spectrum’s lease was 3.9 per cent. Its rental reversion for Q3FY23 was 3.8 per cent.

The Reit updated that 76 per cent of its non-current loans have been hedged through floating-to-fixed interest rate swaps, and it has no long-term refinancing obligation till Q4FY24. It recorded 36.3 per cent total returns from Nov 1 to Nov 8, taking its decline for the year to date to 36 per cent. SGX RESEARCH

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