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Home REITs 2 Resilient Overseas REITs for Your Watchlist

2 Resilient Overseas REITs for Your Watchlist

The pandemic has affected different businesses to varying degrees.

Some, such as Singapore Airlines Limited (SGX: C6L), are facing an existential crisis as around 96% of its flights have been cancelled due to lockdowns and border closures.

Tourist operator Straco Corporation Ltd (SGX: S85) was forced to temporarily shut its aquarium attractions in China and suspend operations at the Singapore Flyer.

On the flip side, rubber glove manufacturers such as Riverstone Holdings Limited (SGX: AP4) and supermarket operator Sheng Siong Group Ltd (SGX: OV8) have seen surging sales and higher net profits.

Similarly, for REITs, they have been impacted to varying extents based on the property sub-types they own within their portfolios.

Hospitality REITs have been the hardest hit of the bunch, while industrial REITs have witnessed only a slightly negative impact.

It’s tough to escape the adverse effects from the pandemic as most tenants of REITs have been hit in one way or another.

However, here are two overseas REITs that have been minimally impacted by COVID-19 thus far.

Elite Commercial REIT (SGX: MXNU)

Elite Commercial REIT invests in commercial real estate assets located in the United Kingdom (UK).

The REIT’s portfolio consists of 97 predominantly freehold commercial buildings located across the UK, with a total net internal area of around 2.6 million square feet.

The portfolio is unique in that it is primarily occupied by a single tenant – the Department for Work and Pensions (DWP), the largest public service department of the UK government.

The DWP is responsible for welfare, pensions and child maintenance for over 20 million claimants, and operates as a counter-cyclical tenant during tough times.

Counter-cyclical means that it moves in a direction opposite to the economy. When the economy is doing poorly, there will be a larger number of people claiming benefits, increasing DWP’s engagement with the locals and cementing its important position.

Elite was only listed in February this year and in its latest results from listing date till 30 June 2020, it reported revenue that was flat against its forecast, while distribution per unit (DPU) rose 1% above forecast at 1.95 pence.

This was despite the challenging economic backdrop and showcases Elite as a bastion of stability amidst the pandemic.

The REIT continues to enjoy stable cash flows from its sole tenant and has already received close to 100% of the three-month rent for the period from July till September 2020.

Investors can thus enjoy certainty and peace of mind as the REIT’s main tenant continues to churn out healthy cash flows.

The REIT manager is also exploring opportunities for growth via acquisitions to enhance returns to unitholders.

United Hampshire US REIT (SGX: ODBU)

United Hampshire US REIT owns a diversified portfolio of income-producing properties located that is made up of two main segments.

The first is grocery-anchored and necessity-based retail properties, while the other is self-storage facilities. All its properties are located in the US.

United Hampshire’s portfolio consists of 22 predominantly freehold properties with an appraised value of US$599.2 million.

The REIT was listed back in March 2020 and in its inaugural earnings release for the period from listing date to 30 June 2020, it reported a slight decline of 3.5% (against its forecast) for revenue.

DPU, however, remained in line with the forecast at US$0.0178.

All the REIT’s properties remained open during the recent lockdown, and retail tenants making up nearly 90% of total base rental income were open for business in June 2020.

Both segments of United Hampshire’s portfolio have remained resilient in the face of the crisis.

Since the start of the calendar year, the REIT manager has secured 11 new and extended retail leases.

The REIT has also included built-in rental escalation clauses for over 80% of its leases, allowing it to enjoy steady organic rental growth.

These leases are also triple-net, meaning that the tenants will foot the bill for all the expenses relating to the properties.

As United Hampshire’s properties offer mostly essential goods and services, they are unlikely to suffer from severe disruptions.

This fact should provide peace of mind for unitholders that the forecast DPU can be met.

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Disclaimer: Royston Yang owns shares in Straco Corporation Ltd.

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