S-Reits’ results to test reopening, recovery narrative as risks loom

MOST of the Singapore-listed real estate investment trusts (S-Reits) are scheduled to announce their latest quarterly results for the period ended Jun 30 over the next couple of weeks.

The S-Reits’ performance over the first half of the year – particularly in the latest quarter to June – will test the strength of the sector’s recovery from the Covid-19 pandemic.

For now, the market narrative could not be more positive: The reopening of borders and global economies bode well for real estate investment trusts (Reits), especially those in the hospitality sector. And indeed, the “smart money” appears to be flowing in.

“The reopening theme had a significant impact on the S-Reit market, with 4 of the 5 stapled hospitality trusts ranking among the 10 (Reits and property trusts) that attracted the highest net institutional inflows in H1 2022,” said Singapore Exchange (SGX) market strategist Geoff Howie.

Ascott Residence Trust led the way for the hospitality Reits, attracting some S$41.5 million of net institutional inflows in the first half. This was followed by S$16.1 million in net institutional inflows for Frasers Hospitality Trust, S$6.7 million for CDL Hospitality Trusts and S$1.3 million for Ara US Hospitality Trust.

Howie noted that the 5 Singapore-listed hospitality trusts in total garnered S$62 million of net institutional inflows in H1, and averaged total returns of 17 per cent.

“Frasers Hospitality Trust, Ascott Residence Trust, Far East Hospitality Trust and CDL Hospitality Trusts (also) ranked among the 10 strongest performing Asia-Pacific-listed Reits in H1 2022,” he added.

S-Reits in other sub-sectors were no slouches either, with those that have already released their results for the latest quarter giving some inkling of what is to come.

Commercial Reit Mapletree North Asia Commercial Trust (MNACT) logged the highest net institutional inflows among the S-Reits for the first half at S$185.8 million.

The Reit, which released its latest quarterly business update on Jul 21, reported a 4.1 per cent year on year growth in net property income (NPI) for the first quarter ended June.

This was largely attributable to full-quarter contribution from Hewlett-Packard Japan Headquarters Building, which it acquired in June last year, as well as a lower quantum of rental relief granted for Hong Kong shopping mall Festival Walk.

However, tighter social-distancing measures and bans on dining-in imposed by the authorities to contain the spread of Covid-19 at the start of the year cut Festival Walk’s shopper traffic by 10 per cent in Q1 while tenant sales dipped 1.1 per cent.

In the industrial space, Sabana Industrial Reit (Sabana Reit) on Jul 20 posted a 7.4 per cent increase in distribution per unit (DPU) to S$0.0159 for the first half ended June.

Rental reversion for H1 came in at 9.1 per cent, with portfolio occupancy rising 4.8 percentage points to 88.2 per cent.

Sabana Reit was also among the S-Reits with the highest net institutional inflows in H1, drawing in S$9.2 million.

SGX’s Howie noted that aside from the reopening plays, restructuring themes have benefitted S-Reits such as MNACT and Sabana Reit.

MNACT, he said, has seen a “surge” in trading turnover this year following the announcement of the planned merger with Mapletree Commercial Trust (MCT), while Sabana Reit is entering into the next stage of its rejuvenation plans and targeting to upsize its portfolio to more than S$1 billion in the next 3 to 5 years.

“(S-Reits) have continued to attract more than their fair share of investor activity, with the sector representing more than 10 per cent of the total market capitalisation of the Singapore stock market, and more than 20 per cent of its day-to-day turnover,” Howie said.

Apart from MNACT and Sabana Reit, other S-Reits that have reported their results so far have painted a glowing picture.

SPH Reit on Jul 7 posted a 5.1 per cent increase in DPU to S$0.0145 for the Q3 ended May on the back of a marked recovery in tenant sales.

Mapletree Logistics Trust (MLT) on Jul 21 reported DPU of S$0.02268 for the first quarter ended June, up 5 per cent from a year ago. The industrial Reit’s Q1 gross revenue and NPI jumped 14.6 per cent and 13.2 per cent, respectively.

As more S-Reits report their financial results in the weeks ahead, it is easy to be lulled into a false sense of security.

The headline figures are likely to show that the reopening recovery is well and truly on the way.

But with inflation and interest rate hikes looming over the global economy, investors will do well to temper their optimism.

Assuming utility rates could potentially double, RHB analyst Vijay Natarajan said S-Reits could see DPU declines of between 1 per cent and 5 per cent this year, depending on their utilities hedge position.

“With the sharp spike in interest rates, investors have been paying close attention to S-Reits’ debt profiles to assess the potential impact,” he added.