Income-seeking investors had to endure a wild ride this year.
As the pandemic swept across the globe, many businesses have been forced to adopt better ways of doing business, while others have managed to thrive despite the difficulties.
Many, though, have slashed their dividends as they conserve cash to survive this crisis.
REITs have not escaped unscathed either.
Commercial and retail REIT Mapletree Commercial Trust (SGX: N2IU) reported a 9.9% fall in its distribution per unit (DPU) for its fiscal 2021 first-half.
Heartland retail REIT Frasers Centrepoint Trust (SGX: J69U), or FCT, which recently released its full fiscal year 2020 earnings, saw its DPU plunge by 25.1% year on year.
Even healthcare REIT First REIT (SGX: AW9U) was not spared.
For its third quarter 2020 earnings, the REIT reported a sharp 48.7% year on year drop in its nine-month DPU.
The healthcare REIT’s share price has also taken a beating as it has had to restructure some of its master lease agreements.
Will REITs be able to recover in 2021?
Can they start to raise DPU after going through a tough 2020?
Tapering off of tenant reliefs
To be sure, one of the key reasons for the fall in DPU for many REITs was the doling out of tenant relief measures.
As the pandemic swept across the globe and forced many countries to impose lockdowns and movement restrictions, tenants in malls faced plunging sales and significantly lower footfall.
Retail REIT managers extended rental support to many of its struggling tenants through a combination of reliefs and rebates.
The support was carved out from a part of the REIT’s total distributable income, resulting in DPU not meeting the requirement of 90% of the REITs’ earnings in some cases.
The Monetary Authority of Singapore has relaxed this requirement for REITs as they encounter unprecedented financial stress.
In 2021, many of these reliefs should taper off as Singapore hopefully can transition to Phase III of its reopening.
The sums retained by the REIT for potential further relief may also be released next year to provide a DPU boost.
Depending on how the crisis pans out, there could also be upside if a global recovery gains momentum.
Vaccines provide hope
Both Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA) have announced that their COVID-19 vaccines boast a high efficacy rate of above 90%.
In what will go down as one of the fastest vaccine development timelines in history, both pharmaceutical companies are now in talks with various countries on manufacturing and distributing their vaccines to those who need it the most.
It’s a breath of fresh air for the world as these vaccines provide hope for ending the pandemic, allowing for the possible reopening of borders and the lifting of lockdowns next year.
While the logistics still need to be sorted out, the tide may finally be turning against the coronavirus, resulting in better economic prospects for 2021.
Good reasons for optimism
Even amid the crisis, there are good reasons to be optimistic.
Spending remains healthy as witnessed by the huge crowds that flocked to Orchard Road recently for the “Black Friday” sales.
And heartland malls have seen tenant sales almost back to pre-pandemic levels despite footfall still being down.
FCT reported that for October, total tenant sales were down just 1.8% year on year even though shopper traffic was down 38.4% year on year.
Aviation may see a slow but sustained recovery as more airlines arrange for green lanes or travel bubbles, providing a lift to the beleaguered sector.
And as more people take to the skies, the hotels and tourism industries should receive a much-needed boost.
Hospitality REITs should enjoy higher occupancy rates and log higher revenue per available room (RevPar) when this happens.
With the Singapore government recently releasing a batch of $100 SingapoRediscover vouchers for each eligible Singaporean aged 18 and above, the tourism industry will experience a further fillip.
Get Smart: The worst has passed
The worst seems to be over for the REITs.
A raft of measures has been announced that should provide some relief for tenants, while the announcement of the vaccines should hopefully trigger a wave of economic recovery for battered sectors.
Some, such as Mapletree Logistics Trust (SGX: M44U), have also taken the opportunity to announce major acquisitions.
There are good signs that REITs can raise DPU next year, after what was one of the worst years for REITs since the Global Financial Crisis.
That said, it’s also important to select the stronger REITs as their recovery may be sharper and swifter than their weaker counterparts.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
