S-Reits with Singapore office assets sanguine on rental outlook

ACCORDING to data from the Urban Redevelopment Authority (URA), office rental prices in Q4 2021 have improved by 0.9 per cent quarter on quarter. The improvement in Q4 2021 comes after a decline of 3.5 per cent in the previous quarter. On a year-on-year basis, office rents have improved by 1.9 per cent in 2021, after dipping over 8.5 per cent in 2020.

Office vacancy rates have also shown a slight improvement in the latest Q4 2021 at 12.8 per cent.

Listed in Singapore are 5 S-Reits with significant exposure to local office assets: CapitaLand Integrated Commercial Trust (CICT), C38U Mapletree Commercial Trust (MCT), N2IU Suntec Reit, T82U Keppel Reit, K71U and OUE Commercial Reit. TS0U : TS0U 0% Three have reported full-year 2021 results.

CICT is a diversified S-Reit which has 36.8 per cent of its portfolio value in office-related assets with a majority located in Singapore. It reported a full-year 2021 gross revenue exceeding S$1.3 billion and net property income of over S$951 million from its enlarged portfolio since the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust in 2020.

CICT's office portfolio has seen average office rentals improve 2.6 per cent quarter on quarter to S$10.33 psf on Dec 31, 2021 and improving from S$10.27 psf on Dec 31, 2020. The Reit's office occupancy rate stands at 91.5 per cent and it notes that the gap between committed rents and expired rents is expected to narrow as office market rentals look to improve.

CICT's major new leases and renewals completed in Q4 2021 and January 2022 included GIC, Mabanaft and Satellite (International) Singapore, and the Reit aims to continue to backfill vacancy in the portfolio as well as manage leases expiring in 2022.

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Suntec Reit has 82.2 per cent of its diversified portfolio in the office sector. It reported a full year 2021 gross revenue of over S$358 million, increasing 13.5 per cent year on year, and a net property income of over S$254 million, expanding 27.4 per cent year on year.

Suntec Reit's 3 Singapore office properties - Suntec City Office, One Raffles Quay, and MBFC Towers 1 and 2 - have an overall occupancy rate of 97.5 per cent, improving from 97.0 per cent the year before and exceeding that of Singapore's Core CBD occupancy rate of 93.3 per cent. Rent reversions grew 3.2 per cent in 2021 and its top 3 new tenants in 2021 include sectors from technology, media and telecommunications, banking, insurance and financial services, and manufacturing & distribution.

Suntec Reit expects the outlook for its Singapore office portfolio to improve in tandem with economic recovery and income contribution to increase driven by cumulative positive rent reversions achieved in the past 14 quarters. However, the Reit notes that high expiry rents may result in weak positive rent reversion.

Keppel Reit is a pure-play office S-Reit with 78.4 per cent of its portfolio in Singapore office assets. It declared full year net property income of over S$172 million, increasing 27.3 per cent year on year and driven by acquisitions of Keppel Bay Tower in Singapore and Blue & William in North Sydney and divestment of 275 George Street in Brisbane.

Keppel Reit has an occupancy rate of 95.4 per cent and its tenant retention rate was 62 per cent for FY2021.

OUE Commercial Reit is due to report second half and financial year ended Dec 31, 2021 after trading hours on Feb 16, 2022. 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.