With Phase III in sight, REITs in Singapore are looking forward to better days after a tough year.
It’s no secret that REITs were among the hardest-hit industries during the circuit breaker period.
Despite the challenging conditions, there have been pockets of calmness if you care to look hard enough.
Some REITs own assets that are resilient against these headwinds, while others are lucky enough to remain unaffected as their tenants are standing strong despite the crisis.
Here are three REITs that are well-positioned to pay out higher distribution per unit (DPU) next year.
Elite Commercial REIT (SGX: MXNU)
Elite Commercial REIT invests in commercial real estate assets located in the UK.
Its portfolio consists of 97 predominantly freehold commercial buildings with a total internal area of around 2.6 million square feet, valued at around GBP 319.1 million as of 31 August 2019.
The buildings have primarily the Department of Work and Pensions (“DWP”), UK’s largest public service department, as its sole tenant, and the rental contracts include escalations that are linked to the consumer price index.
Elite’s properties have remained resilient during this pandemic as the properties face greater demand during a crisis as there will be more claimants for unemployment benefits.
There were over 20 million claimants last year and the DWP is, therefore, integral to the social fabric of the UK.
In a business update released for the third quarter of 2020, the REIT reported that revenue and income available for distribution were in line with forecasts.
DPU stood at 1.23 pence for the third quarter and 3.18 pence from the date of listing till 30 September 2020, up 1.7% and 1.3% from the forecast, respectively.
In mid-October, the REIT announced the acquisition of another 58 buildings in the UK, also primarily leased out to the UK government.
This acquisition is expected to boost DPU by around 3.2% and will boost the REIT’s size by 67%.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT invests in a portfolio of income-producing grocery-anchored and necessity-based retail properties located in the US.
The REIT also owns modern self-storage facilities, and its initial portfolio consists of 22 such properties with a value of around US$599.2 million.
Despite the COVID-19 pandemic, the REIT reported that 100% of its tenants were open for business during its third-quarter business update.
The properties also maintain a high occupancy rate of 95% and had a long weighted average lease expiry (WALE) of 8.4 years.
A long WALE means less risk for unitholders as tenancy agreements are not due for renewal anytime soon.
For the third quarter, gross revenue and net property income dipped around 3% below forecast due to rent relief and rent deferrals granted to assist tenants.
However, distributable income remained in line with the forecast.
The REIT looks set to continue to do well as its anchor tenants BJs Wholesale Club (NYSE: BJ) and Home Depot (NYSE: HD) continue to thrive in an omnichannel, offline to online environment.
Home Depot reported a 24.6% year on year increase in sales while contributing 4.8% of the REIT’s gross rental income.
BJ Wholesale Club announced that sales surged by 24.2% year on year, with the company contributing 13.5% of the REIT’s rental income.
Cromwell European REIT (SGX: CNNU)
Cromwell European REIT owns a diversified portfolio of properties in Europe that are used primarily for office, light industrial and logistics purposes.
The REIT’s portfolio comprises 95 properties located in major cities in France, Italy, Germany, the Netherlands, Denmark, Finland and Poland.
For the REIT’s third-quarter business update, gross revenue and net property income increased by 2.1% and 14.3% on a quarter on quarter basis.
Distributable income was up 5.8% from last quarter as there were no doubtful debt provisions in the current quarter and also helped by a reversal of doubtful debt provision.
Cromwell is handling the pandemic well, with only 12% of tenant-customers temporarily re-profiled to monthly payments due to stress from the pandemic.
The REIT continued to enjoy around 90% cash collections from February to September 2020.
Based on the progress so far, The REIT manager concludes that COVID-19 has had limited impact on the REIT’s tenant-customers and that the REIT is likely to remain resilient.
Cromwell’s portfolio saw 30 new leases being signed during the quarter along with 15 lease renewals, and there was also positive rent reversion of 2.8%.
Moving forward, the REIT is likely to emerge relatively unscathed from this crisis and continue to report strong numbers.
As an investor, you might wonder what the future holds for the REITs in your portfolio. Or how to select REITs that can make you money as Singapore’s economy struggles to recover from the pandemic.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.