SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

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Equity Bottom-Up

Manulife US REIT (MUST) / Equity Bottom-Up

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<p>SGX lists eight actively traded S-Reits with properties in the United States (US). Five out of the eight S-Reits have pure exposure to the US and among them are three US office S-Reits.<br><br>
The US Centres for Disease Control and Prevention (CDC) on May 13 announced that fully vaccinated individuals do not need to wear masks outdoors and can avoid wearing masks indoors in most places, and updated that life can begin to return to normal despite caution issued by the World Health Organization (WHO).</p>

<p>Nonetheless, US Office S-Reits remain sanguine about companies' return-to-office plans and are adapting to agile and "new normal" arrangements as the US continues to push for normalcy and re-opening of sectors and industries.<br><br>
The three US Office S-Reits trade at an average price-to-book ratio of 0.98 times and average 7.8 per cent in distribution yield. All of the three have average committed occupancy rates of over 90 per cent, above the average Class A US office average of 84 per cent, and have weighted average lease expiry (WALE) that range from 4.3 to 5.3 years.<br><br>
Manulife US Reit (MUST), which has an occupancy rate of 92 per cent, has observed more tenants gradually returning to the office with May 2021's portfolio physical occupancy at 20.0 per cent, versus 13.3 per cent seen in Jan 2021. The Reit notes that offices continue to remain relevant as companies adopt a hybrid model and the majority of employers do require the same if not more office space post Covid-19, driven by the demand for rising headcount and social distancing needs.</p>

<p>MUST sees post-Covid-19 themes such as the acceleration of population and company migration to magnet cities, growing tech sector, strong demand for health care, and fast developing knowledge economy to provide uplift for the Reit. MUST has a focus to target magnet cities which are defined as having attributes such as growing tech tenants, population growth, business friendly and lower costs of living.</p>

<p>Prime US Reit (Prime) sees interest in its assets pick up as tenants make longer-term leasing decisions, despite the current low physical occupancy. Its current portfolio occupancy rate is at 91.7 per cent. Some of its tenants which include Goldman Sachs and Wells Fargo have also made plans for employees to return to the office by July 2021.</p>

<p>In securing new leases, Prime notes that its new tenants are largely from diverse established and technology sectors. The Reit observes that the US office transaction market has shown signs of activity in recent weeks and it is actively exploring acquisition opportunities in its target markets.</p>

<p>Keppel Pacific Oak US Reit (KORE) has a 91.6 per cent portfolio committed occupancy rate and believes that the rollout of vaccines and removal of restrictions is raising confidence and optimism. LaSalle Network's Office Re-Entry Index shows that 70 per cent of CEOs, human resources and finance leaders are planning for employees to return to the office by fall 2021.</p>

<p>KORE has a focus in markets with exposure to technology hubs and tech-tenancy. Its recent leasing activities are driven mainly by demand from professional services, finance and insurance, and technology. Over 37 per cent of its current portfolio by net lettable area comprises tenants from technology and medical and healthcare. <br><br><strong><em>REIT Watch is a weekly column on The Business Times, <a href="https://www.businesstimes.com.sg/companies-markets/us-office-s-reits-half-empty-or-half-full">read</a> the original version.</em></strong></p>
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    8 SREIT with exposes to US assets


SGX lists eight actively traded S-Reits with properties in the United States (US). Five out of the eight S-Reits have pure exposure to the US and among them are three US office S-Reits.  
The US Centres for Disease Control and Prevention (CDC) on May 13 announced that fully vaccinated individuals do not need to wear masks outdoors and can avoid wearing masks indoors in most places, and updated that life can begin to return to normal despite caution issued by the World Health Organization (WHO).

Nonetheless, US Office S-Reits remain sanguine about companies' return-to-office plans and are adapting to agile and "new normal" arrangements as the US continues to push for normalcy and re-opening of sectors and industries.  
The three US Office S-Reits trade at an average price-to-book ratio of 0.98 times and average 7.8 per cent in distribution yield. All of the three have average committed occupancy rates of over 90 per cent, above the average Class A US office average of 84 per cent, and have weighted average lease expiry (WALE) that range from 4.3 to 5.3 years.  
Manulife US Reit (MUST), which has an occupancy rate of 92 per cent, has observed more tenants gradually returning to the office with May 2021's portfolio physical occupancy at 20.0 per cent, versus 13.3 per cent seen in Jan 2021. The Reit notes that offices continue to remain relevant as companies adopt a hybrid model and the majority of employers do require the same if not more office space post Covid-19, driven by the demand for rising headcount and social distancing needs.

MUST sees post-Covid-19 themes such as the acceleration of population and company migration to magnet cities, growing tech sector, strong demand for health care, and fast developing knowledge economy to provide uplift for the Reit. MUST has a focus to target magnet cities which are defined as having attributes such as growing tech tenants, population growth, business friendly and lower costs of living.

Prime US Reit (Prime) sees interest in its assets pick up as tenants make longer-term leasing decisions, despite the current low physical occupancy. Its current portfolio occupancy rate is at 91.7 per cent. Some of its tenants which include Goldman Sachs and Wells Fargo have also made plans for employees to return to the office by July 2021.

In securing new leases, Prime notes that its new tenants are largely from diverse established and technology sectors. The Reit observes that the US office transaction market has shown signs of activity in recent weeks and it is actively exploring acquisition opportunities in its target markets.

Keppel Pacific Oak US Reit (KORE) has a 91.6 per cent portfolio committed occupancy rate and believes that the rollout of vaccines and removal of restrictions is raising confidence and optimism. LaSalle Network's Office Re-Entry Index shows that 70 per cent of CEOs, human resources and finance leaders are planning for employees to return to the office by fall 2021.

KORE has a focus in markets with exposure to technology hubs and tech-tenancy. Its recent leasing activities are driven mainly by demand from professional services, finance and insurance, and technology. Over 37 per cent of its current portfolio by net lettable area comprises tenants from technology and medical and healthcare.   REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - US office S-Reits - half empty or half full?

Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<h2>Singapore</h2><h3><a href="https://www.smartkarma.com/entities/prime-us-reit" target="_blank" data-smartkarma-citation="entities:28144" rel="noopener">Prime US REIT (PRIME SP)</a> in talks with WeWork on proposed lease restructuring</h3><ul><li>Co-working space operator WeWork has approached PRIME with a proposal to restructure its lease at the latter's Class-A office property in California, and discussions are ongoing. The tenant occupies 56,977sqft within Tower I at Emeryville, out of the building's NLA of 222,606sqft. The tenant contributes less than 2.5% of PRIME's cash rental income as at end-Mar. It added that the tenant has been current on its rental obligations till mid-Jun21, and the lease terms are currently under evaluation</li><li>PRIME has called on the tenant to continue to meet its rental obligations, and also called upon the existing security package for the payment of such obligations. PRIME's security in relation to that WeWork lease consists of a combination of protections. If the counterparty honours its obligations, such protections will cover the tenant's monthly lease obligations through as much as end-2022. PRIME does not expect the matter to have any impact on the distribution per unit of PRIME for FY21, in light of the security. Based on the independent valuation sought, this will not materially affect the value of PRIME's portfolio as compared to the portfolio appraisal conducted as at last Dec.</li></ul>

SingaporePrime US REIT (PRIME SP) in talks with WeWork on proposed lease restructuringCo-working space operator WeWork has approached PRIME with a proposal to restructure its lease at the latter's Class-A office property in California, and discussions are ongoing. The tenant occupies 56,977sqft within Tower I at Emeryville, out of the building's NLA of 222,606sqft. The tenant contributes less than 2.5% of PRIME's cash rental income as at end-Mar. It added that the tenant has been current on its rental obligations till mid-Jun21, and the lease terms are currently under evaluationPRIME has called on the tenant to continue to meet its rental obligations, and also called upon the existing security package for the payment of such obligations. PRIME's security in relation to that WeWork lease consists of a combination of protections. If the counterparty honours its obligations, such protections will cover the tenant's monthly lease obligations through as much as end-2022. PRIME does not expect the matter to have any impact on the distribution per unit of PRIME for FY21, in light of the security. Based on the independent valuation sought, this will not materially affect the value of PRIME's portfolio as compared to the portfolio appraisal conducted as at last Dec.

ASEAN Builder's Scoop (18Jun21) - PRIME/WeWork Lease Restructuring

<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.<br></em></div>
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<h2>PRIME US REIT</h2>
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<h3>Towards normalisation</h3>
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<li>1Q21 NPI and distributable income met 23% of our FY21e estimates. Portfolio occupancy dipped 0.7% to 91.7%.</li>
<li>99% rent collection with minimal lease expiries of 8%/8.4% in FY21e/FY22e, evenly spread across properties. Leasing pick-up expected with greater return to offices.</li>
<li>Downgrade to ACCUMULATE from BUY as recent share-price improvements have likely priced in some positives. DDM target price of US$0.94 (COE 9.5%) unchanged.</li>
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<p><strong>The Positives</strong></p>
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<li>1Q21 largely in line. Although Covid-19 cases in the U.S. hit new highs in January, Prime’s income was resilient. Rent collection remained strong at 99% with minimal rent concessions. Gross revenue and net property income were steady YoY. Property expenses increased 11.7% YoY due to a full quarter’s share of Park Tower’s expenses, acquired on 24 Feb 2020.</li>
<li>High renewals; minimal FY21 expiries. In 1Q21, Prime signed 57,647 sq ft of leases at positive rental reversions of 9.5%. More than 80% were renewals or for expansion by existing tenants. Leases were signed with Extend Health, CBRE and FLS Transportation, among others. Prime also signed 22,437 sq ft of short-term extensions. Leases due to expire in FY21 account for only 8% of cash rental income (CRI). These expiries are well spread across its properties with none above 1.4%. Month-to-month leases constitute only 0.7% of CRI.</li>
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<p><strong>The Negative</strong></p>
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<li>Portfolio occupancy dipped 0.7% to 91.7%. Several properties’ occupancy dipped QoQ. The more notable declines were at 222 Main in Salt Lake City and Promenade I &amp; II in San Antonio. 222 Main’s occupancy fell 3% to 90.9%. That of Promenade I &amp; II retreated 3.6% to 93.9%. The main reason was a few tenants left the buildings. January’s Covid-19 spike halted leasing in those markets. As such, portfolio occupancy eased 0.7% to 91.7%. Still, this was well above the Class A office average of 84.3%.</li>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report. 





PRIME US REIT




Towards normalisation





1Q21 NPI and distributable income met 23% of our FY21e estimates. Portfolio occupancy dipped 0.7% to 91.7%.
99% rent collection with minimal lease expiries of 8%/8.4% in FY21e/FY22e, evenly spread across properties. Leasing pick-up expected with greater return to offices.
Downgrade to ACCUMULATE from BUY as recent share-price improvements have likely priced in some positives. DDM target price of US$0.94 (COE 9.5%) unchanged.




















The Positives

1Q21 largely in line. Although Covid-19 cases in the U.S. hit new highs in January, Prime’s income was resilient. Rent collection remained strong at 99% with minimal rent concessions. Gross revenue and net property income were steady YoY. Property expenses increased 11.7% YoY due to a full quarter’s share of Park Tower’s expenses, acquired on 24 Feb 2020.
High renewals; minimal FY21 expiries. In 1Q21, Prime signed 57,647 sq ft of leases at positive rental reversions of 9.5%. More than 80% were renewals or for expansion by existing tenants. Leases were signed with Extend Health, CBRE and FLS Transportation, among others. Prime also signed 22,437 sq ft of short-term extensions. Leases due to expire in FY21 account for only 8% of cash rental income (CRI). These expiries are well spread across its properties with none above 1.4%. Month-to-month leases constitute only 0.7% of CRI.

The Negative

Portfolio occupancy dipped 0.7% to 91.7%. Several properties’ occupancy dipped QoQ. The more notable declines were at 222 Main in Salt Lake City and Promenade I &amp; II in San Antonio. 222 Main’s occupancy fell 3% to 90.9%. That of Promenade I &amp; II retreated 3.6% to 93.9%. The main reason was a few tenants left the buildings. January’s Covid-19 spike halted leasing in those markets. As such, portfolio occupancy eased 0.7% to 91.7%. Still, this was well above the Class A office average of 84.3%.







(Non-SGX Report) PRIME US REIT: Towards Normalisation

<h2>Singapore</h2><h3>SREITs results in a glance (see detailed spreadsheet and calendar attached)</h3><table class="table table-striped"><tbody><tr><td style="width: 141.25pt;"><p> </p></td><td style="width: 141.2pt;"><p>PRIME (US$)</p></td><td style="width: 141.2pt;"><p>KORE (US$)</p></td><td style="width: 141.2pt;"><p>MUST (US$)</p></td></tr><tr><td style="width: 141.25pt;"><p>Period</p></td><td style="width: 141.2pt;"><p>1Q21</p></td><td style="width: 141.2pt;"><p>1Q21</p></td><td style="width: 141.2pt;"><p>1Q21</p></td></tr><tr><td style="width: 141.25pt;"><p>Gross Revenue (S$ m)</p></td><td style="width: 141.2pt;"><p>35.9 (+2.5% YoY)</p></td><td style="width: 141.2pt;"><p>34.6 (-2.1% YoY)</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr><tr><td style="width: 141.25pt;"><p>NPI (S$ m)</p></td><td style="width: 141.2pt;"><p>23.0 (-2.0% YoY)</p></td><td style="width: 141.2pt;"><p>20.4 (-2.8% YoY)</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr><tr><td style="width: 141.25pt;"><p>DPU (S$ c)</p></td><td style="width: 141.2pt;"><p>Not Disclosed</p></td><td style="width: 141.2pt;"><p>Not Disclosed</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr><tr><td style="width: 141.25pt;"><p>NAV per Unit (S$)</p></td><td style="width: 141.2pt;"><p>Not Disclosed</p></td><td style="width: 141.2pt;"><p>Not Disclosed</p></td><td style="width: 141.2pt;"><p>0.730</p></td></tr><tr><td style="width: 141.25pt;"><p>P/B (x)</p></td><td style="width: 141.2pt;"><p>0.99(Based on 4Q20 NAV)</p></td><td style="width: 141.2pt;"><p>0.90 (Based on 4Q20 NAV)</p></td><td style="width: 141.2pt;"><p>1.030 (Based on 4Q20 NAV)</p></td></tr><tr><td style="width: 141.25pt;"><p>Occupancy (%)</p></td><td style="width: 141.2pt;"><p>91.7</p></td><td style="width: 141.2pt;"><p>91.6</p></td><td style="width: 141.2pt;"><p>92.0</p></td></tr><tr><td style="width: 141.25pt;"><p>Reversion (%)</p></td><td style="width: 141.2pt;"><p>8.5</p></td><td style="width: 141.2pt;"><p>5.7</p></td><td style="width: 141.2pt;"><p>2.1</p></td></tr><tr><td style="width: 141.25pt;"><p>Gearing (%)</p></td><td style="width: 141.2pt;"><p>33.6</p></td><td style="width: 141.2pt;"><p>37.5</p></td><td style="width: 141.2pt;"><p>41.3</p></td></tr><tr><td style="width: 141.25pt;"><p>Cost of Debt (%)</p></td><td style="width: 141.2pt;"><p>2.8</p></td><td style="width: 141.2pt;"><p>2.82</p></td><td style="width: 141.2pt;"><p>3.18</p></td></tr><tr><td style="width: 141.25pt;"><p>1 Yr Fwd Yield (%)</p></td><td style="width: 141.2pt;"><p>8.24</p></td><td style="width: 141.2pt;"><p>8.3</p></td><td style="width: 141.2pt;"><p>8.00</p></td></tr><tr><td style="width: 141.25pt;"><p>Debt Hedged (%)</p></td><td style="width: 141.2pt;"><p>90.0</p></td><td style="width: 141.2pt;"><p>84.7</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr><tr><td style="width: 141.25pt;"><p>Target Price</p></td><td style="width: 141.2pt;"><p>NA</p></td><td style="width: 141.2pt;"><p>NA</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr><tr><td style="width: 141.25pt;"><p>Rating</p></td><td style="width: 141.2pt;"><p>NA</p></td><td style="width: 141.2pt;"><p>NA</p></td><td style="width: 141.2pt;"><p>NA</p></td></tr></tbody></table><h3><a href="https://www.smartkarma.com/entities/prime-us-reit" target="_blank" data-smartkarma-citation="entities:28144" rel="noopener">Prime US REIT (PRIME SP)</a> 1Q21 Business Update – Robust operations metrics; Trading at an attractive 8+% USD yield  </h3><ul><li>1Q21 revenue and NPI came in +2.5% YoY and -2.0% YoY, respectively, to US$35.9m (25.2% BB est) and US$23.5m (26.7% BB est). 1Q21 DI came in -1.2% YoY at US$17.6m, which benefitted from lower interest cost. 1Q21 DPU was undisclosed</li><li>Leasing momentum remained robust with a positive rental reversion of +8.5% in 1Q21 (vs +8.7% in 4Q20 and +8.9% in 3Q20). Focusing on long-term leases – 57,647sqft of long-term leases were executed in 1Q21 at a rental reversion of +9.5%. Below-market portfolio in place rents (by 6.5%) also provide a buffer for rental reversion potential</li><li>Overall portfolio committed occupancy fell to 91.7% in 1Q21 (vs. 92.4% in 4Q20 and 92.6% in 3Q20). PRIME has ~100% of cash rental income with built-in rental escalations averaging over +2% pa. Portfolio occupancy still well above Class-A office average of 84.3%. Rent collections remained robust at 99% with minimal rent concessions. Portfolio WALE stood at 4.3%</li><li>Portfolio gearing stands at 33.8% (vs. 33.5% in 4Q20 and 32.7% in 3Q20) with average cost of debt of 2.8% pa. (vs. 2.7% in 4Q20 and 2.7% in 3Q20) and 90.0% of debt hedged</li><li>PRIME currently trades at 8.24% FY21E yield and 0.99x P/B.</li></ul>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached) PRIME (US$)KORE (US$)MUST (US$)Period1Q211Q211Q21Gross Revenue (S$ m)35.9 (+2.5% YoY)34.6 (-2.1% YoY)NANPI (S$ m)23.0 (-2.0% YoY)20.4 (-2.8% YoY)NADPU (S$ c)Not DisclosedNot DisclosedNANAV per Unit (S$)Not DisclosedNot Disclosed0.730P/B (x)0.99(Based on 4Q20 NAV)0.90 (Based on 4Q20 NAV)1.030 (Based on 4Q20 NAV)Occupancy (%)91.791.692.0Reversion (%)8.55.72.1Gearing (%)33.637.541.3Cost of Debt (%)2.82.823.181 Yr Fwd Yield (%)8.248.38.00Debt Hedged (%)90.084.7NATarget PriceNANANARatingNANANAPrime US REIT (PRIME SP) 1Q21 Business Update – Robust operations metrics; Trading at an attractive 8+% USD yield  1Q21 revenue and NPI came in +2.5% YoY and -2.0% YoY, respectively, to US$35.9m (25.2% BB est) and US$23.5m (26.7% BB est). 1Q21 DI came in -1.2% YoY at US$17.6m, which benefitted from lower interest cost. 1Q21 DPU was undisclosedLeasing momentum remained robust with a positive rental reversion of +8.5% in 1Q21 (vs +8.7% in 4Q20 and +8.9% in 3Q20). Focusing on long-term leases – 57,647sqft of long-term leases were executed in 1Q21 at a rental reversion of +9.5%. Below-market portfolio in place rents (by 6.5%) also provide a buffer for rental reversion potentialOverall portfolio committed occupancy fell to 91.7% in 1Q21 (vs. 92.4% in 4Q20 and 92.6% in 3Q20). PRIME has ~100% of cash rental income with built-in rental escalations averaging over +2% pa. Portfolio occupancy still well above Class-A office average of 84.3%. Rent collections remained robust at 99% with minimal rent concessions. Portfolio WALE stood at 4.3%Portfolio gearing stands at 33.8% (vs. 33.5% in 4Q20 and 32.7% in 3Q20) with average cost of debt of 2.8% pa. (vs. 2.7% in 4Q20 and 2.7% in 3Q20) and 90.0% of debt hedgedPRIME currently trades at 8.24% FY21E yield and 0.99x P/B.

ASEAN Builder's Scoop (19May21) - PRIME robust operations metrics

ARA US Hospitality Trust / Equity Bottom-Up

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<p>WITHIN Singapore's Reits &amp; Property Trusts (S-Reits) that are listed for trading, there are five (ARA US Hospitality Trust, Manulife US Reit, Prime US Reit, United Hampshire US Reit, Keppel Pacific Oak US Reit) with 100 per cent of assets located in the US and three (IReit Global, Cromwell European Reit, Elite Commercial Reit) with 100 per cent of their assets in Europe.</p>

<p>These eight S-Reits have an average distribution yield of 7.5 per cent and generated positive average total returns of 8.9 per cent in the 2021 year-to-date till May 12.</p>

<p>In the past week, Cromwell European Reit (CE Reit), Manulife US Reit (MUST) and United Hampshire US Reit (UHU Reit) published their business/operational updates for the first quarter of 2021. Common outlook expectations revolved around the recovery of economic activities in 2021 as vaccination roll-outs progress, restrictions ease, daily activities resume and employment data rebound.</p>

<p>With most of Europe still under tight restrictions during the quarter, GDP for the eurozone economy fell by 0.6 per cent quarter-on-quarter, based on preliminary data released by Europe's statistics office Eurostat. CE Reit noted that, barring a further deterioration of the current Covid-19 situation, the eurozone's 2021 GDP growth is projected at 4.1 per cent (according to Oxford Economics).<br><br>
CE Reit's gross revenue and net property income (NPI) declined marginally by 0.1 per cent and 0.4 per cent, respectively for Q1 FY2021. This was attributed to prolonged Covid-19 lockdowns in most of CE Reit's countries of operations. However, the Reit believes that there will be higher demand for light industrial /logistics space as e-commerce continues to expand in 2021, supplemented by further demand coming from the reconfiguration and expansion of supply chains so as to be better prepared for future disruptions and consumer demand shocks. In March 2021, CE Reit completed the acquisition of 11 modern logistics assets in Czech Republic and Slovakia. The Reit aims to increase exposure to logistics to 50 per cent of portfolio asset under management (AUM), up from the current 38 per cent.<br><br>
In contrast to Europe's GDP contraction in the Q1 2021, the US reported a quarter-on-quarter GDP growth of 1.6 per cent. Both MUST and UHU Reit noted that the GDP rebound indicates momentum coupled with improving unemployment rate, fast-paced vaccination roll-out and two rounds of federal stimulus payments.</p>

<p>In its Q1 FY2021 operational update, MUST reported strong lease renewals (93.6 per cent of leases by NLA) but minimal new leases as prospective tenants continue to stay cautious. Looking forward, MUST expects post Covid-19 themes such as the acceleration of population and company migration, growing technology sector, strong demand for healthcare and fast developing knowledge economy to provide uplift to the Reit. MUST intends to target cities that are business-friendly, have growing technology and healthcare industries as well as robust population growth.</p>

<p>Compared to IPO forecasts, UHU Reit's Q1 FY2021 distributable income was up 1.3 per cent while gross revenue and NPI were down 1.9 per cent and 1.8 per cent respectively. UHU Reit noted that, according to the National Retail Federation (NRF), US retail sales are expected to grow between 6.5 per cent and 8.2 per cent in 2021, underpinned by healthy consumer fundamentals, pent-up demand and widespread vaccination. This was evident in the new and renewal leases signed this quarter, most of which were food &amp; beverage and consumer services tenants.</p>

<p>The Reit also expects trends such as increase in consumer awareness of the benefits of self-storage, an increasingly mobile population and the decluttering of homes to create more efficient workspaces to continue even as the country transitions to a post-Covid environment.<br><br><strong><em>REIT Watch is a weekly column on The Business Times,<a href="https://www.businesstimes.com.sg/companies-markets/china-poised-to-drive-economic-growth"> </a><a href="https://www.businesstimes.com.sg/companies-markets/western-s-reits-sanguine-on-post-covid-outlook">read</a><a href="https://www.businesstimes.com.sg/companies-markets/bulk-of-s-reits-in-key-global-real-estate-indices"> </a>the original version.</em></strong></p>
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    REIT watch


WITHIN Singapore's Reits &amp; Property Trusts (S-Reits) that are listed for trading, there are five (ARA US Hospitality Trust, Manulife US Reit, Prime US Reit, United Hampshire US Reit, Keppel Pacific Oak US Reit) with 100 per cent of assets located in the US and three (IReit Global, Cromwell European Reit, Elite Commercial Reit) with 100 per cent of their assets in Europe.

These eight S-Reits have an average distribution yield of 7.5 per cent and generated positive average total returns of 8.9 per cent in the 2021 year-to-date till May 12.

In the past week, Cromwell European Reit (CE Reit), Manulife US Reit (MUST) and United Hampshire US Reit (UHU Reit) published their business/operational updates for the first quarter of 2021. Common outlook expectations revolved around the recovery of economic activities in 2021 as vaccination roll-outs progress, restrictions ease, daily activities resume and employment data rebound.

With most of Europe still under tight restrictions during the quarter, GDP for the eurozone economy fell by 0.6 per cent quarter-on-quarter, based on preliminary data released by Europe's statistics office Eurostat. CE Reit noted that, barring a further deterioration of the current Covid-19 situation, the eurozone's 2021 GDP growth is projected at 4.1 per cent (according to Oxford Economics).  
CE Reit's gross revenue and net property income (NPI) declined marginally by 0.1 per cent and 0.4 per cent, respectively for Q1 FY2021. This was attributed to prolonged Covid-19 lockdowns in most of CE Reit's countries of operations. However, the Reit believes that there will be higher demand for light industrial /logistics space as e-commerce continues to expand in 2021, supplemented by further demand coming from the reconfiguration and expansion of supply chains so as to be better prepared for future disruptions and consumer demand shocks. In March 2021, CE Reit completed the acquisition of 11 modern logistics assets in Czech Republic and Slovakia. The Reit aims to increase exposure to logistics to 50 per cent of portfolio asset under management (AUM), up from the current 38 per cent.  
In contrast to Europe's GDP contraction in the Q1 2021, the US reported a quarter-on-quarter GDP growth of 1.6 per cent. Both MUST and UHU Reit noted that the GDP rebound indicates momentum coupled with improving unemployment rate, fast-paced vaccination roll-out and two rounds of federal stimulus payments.

In its Q1 FY2021 operational update, MUST reported strong lease renewals (93.6 per cent of leases by NLA) but minimal new leases as prospective tenants continue to stay cautious. Looking forward, MUST expects post Covid-19 themes such as the acceleration of population and company migration, growing technology sector, strong demand for healthcare and fast developing knowledge economy to provide uplift to the Reit. MUST intends to target cities that are business-friendly, have growing technology and healthcare industries as well as robust population growth.

Compared to IPO forecasts, UHU Reit's Q1 FY2021 distributable income was up 1.3 per cent while gross revenue and NPI were down 1.9 per cent and 1.8 per cent respectively. UHU Reit noted that, according to the National Retail Federation (NRF), US retail sales are expected to grow between 6.5 per cent and 8.2 per cent in 2021, underpinned by healthy consumer fundamentals, pent-up demand and widespread vaccination. This was evident in the new and renewal leases signed this quarter, most of which were food &amp; beverage and consumer services tenants.

The Reit also expects trends such as increase in consumer awareness of the benefits of self-storage, an increasingly mobile population and the decluttering of homes to create more efficient workspaces to continue even as the country transitions to a post-Covid environment.  REIT Watch is a weekly column on The Business Times, read the original version.



REIT Watch - Western S-Reits sanguine on post-Covid outlook

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