'Turning point' for S-Reits with Singapore office assets?

SOME 2 years after Singapore's Covid-19 lockdown, the return to normalcy appears to be finally gaining traction.

Over the past week, the city-state has seen an easing of safe management measures, described by Prime Minister Lee Hsien Loong as a "major turning point".

This included the doubling of the maximum group size for social gatherings to 10 persons and the lifting of the requirement for masks to be worn outdoors from Mar 29.

More importantly for businesses, the percentage of employees allowed to return to the workplace was raised to 75 per cent of those who can work from home, from 50 per cent prior to the announcement on Mar 24.

There were also strides made in the reopening of Singapore's borders. From Apr 1, fully vaccinated travellers and non-vaccinated children have been allowed to enter quarantine-free, without the need to use Vaccinated Travel Lanes (VTLs) or apply for related passes.

This could bode well for the 5 Singapore-listed real estate investment trusts (S-Reits) that have significant exposure to local office assets: CapitaLand Integrated Commercial Trust (CICT), Mapletree Commercial Trust (MCT), Suntec Reit, Keppel Reit, and OUE Commercial Reit (OUE C-Reit).

Since the announcement of the latest round of easing on Mar 24, the prices of all 5 real estate investment trusts (Reits) have mostly climbed.

The largest gainer among the 5 office S-Reits has been CICT, which has risen 3.6 per cent since the announcement.

By comparison, the benchmark Straits Times Index (Index) has edged up 1.7 per cent over the same period.

At the bottom of the table was MCT, which has traded flat, while the other 3 S-Reits - Suntec Reit, Keppel Reit and OUE C-Reit - are up between 0.8 and 2.9 per cent.

According to data from the Urban Redevelopment Authority (URA), office rental prices have made a slow recovery - rising 1.9 per cent in 2021 after tumbling 8.5 per cent in 2020.

Among the Singapore office Reits, though, rental performance has been mixed.

CICT's Singapore office portfolio saw average office rentals improve slightly to S$10.33 per square foot (psf) for its full-year 2021 ended December, from S$10.27 psf a year ago, while Suntec Reit reported positive office rental reversion of 3.2 per cent for FY2021.

However, Keppel Reit's average signing rent for Singapore office leases concluded in FY2021 fell to S$10.56 psf, compared to the S$11.02 psf for leases concluded in the previous year, based on a weighted average calculation.

Meanwhile, OUE C-Reit's Singapore office rental reversions ranged from negative 4.1 per cent to positive 3.6 per cent for FY2021.

But judging by how CICT's price has moved over the past week and a half, it seems the market is convinced of better days ahead for the office landlords.

CICT on Mar 25 - just a day after the government's announcement - revealed that it was acquiring a 70 per cent stake in 79 Robinson Road, a Grade A office asset in the Central Business District.

Among the market watchers who like the idea of CICT "buying into an upcycle" is Maybank analyst Chua Su Tye.

"We are positive on the deal, against a strong office rental upcycle," Chua said.

DBS analysts Rachel Tan and Derek Tan also viewed the acquisition as a way to "ride on the improving Singapore office market".

After a series of false dawns, Singapore's latest round of easing of Covid-19 measures seems more "real" - at least psychologically.

On the ground, sentiment is boosted by the sight of people wandering about maskless, and the return of crowds everywhere - from coffee shops to office cubicles.

For the S-Reits with exposure to office assets here, this could be the "major turning point", indeed.