Singapore has built up its reputation for being a leading REITs hub, and this has attracted all manner of REITs to list here over the last two decades.
That said, REITs are not immune to crises.
The first was during the Global Financial Crisis in 2008-2009 where some REITs encountered difficulty refinancing their debt and had to resort to heavily-dilutive rights issues to avoid a default.
More than ten years later, REITs are facing a different crisis: demand has been hit badly by lockdowns and border closures.
Given that we are one year into the COVID-19 pandemic, can REITs enjoy a strong recovery in 2021?
The hospitality sector continues to suffer as borders remain closed and travel has plunged to just a fraction of what it was pre-pandemic.
Ascott Residence Trust (SGX: HMN), or ART, recently released its full-year 2020 earnings.
The largest hospitality trust in the Asia Pacific reported that revenue fell 28% year on year to S$369.9 million, while distributable income plunged by 43% year on year.
Distribution per stapled security (DPS) shrivelled by 60% year on year to S$0.0303.
Despite the weaker results, ART is pushing on to grow its portfolio. The REIT recently announced the acquisition of a student accommodation asset in the US for US$95 million that will help to increase pro-forma DPS by around 4.4%.
CDL Hospitality Trust (SGX: J85) is also hurting badly.
Its full-year 2020 revenue fell by 40.3% year on year while DPS plunged by 45% over the same period.
Until countries reopen borders again, these REITs are unlikely to see a sustained recovery.
The retail REITs have witnessed a sharper recovery since Singapore entered Phases II and III of its reopening.
For CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, shopper traffic recovered to almost 68% of the level registered a year ago during the fourth quarter of 2020.
Tenant sales did even better, down by just 5% year on year for the same period.
The same trend was observed for Frasers Centrepoint Trust (SGX: J69U), or FCT.
Shopper traffic was down 31.5% year on year in December 2020, total tenant sales only dipped by 1.3% year on year.
Footfall is unlikely to increase further due to social distancing measures, but total spending may stay elevated due to more people telecommuting.
Speaking of telecommuting, the pandemic has driven more businesses to implement work-from-home solutions, ushering in a new era for convenience and flexibility for millions of employees.
Businesses, however, have begun to question if they need to lease as much office space as they do now.
Vaccines have given us hope that there may be an end to this pandemic soon, though it remains to be seen if telecommuting will continue.
Some studies show that a hybrid work model is likely to be the norm for 2021 and beyond.
Office REITs, with portfolios of commercial properties, are evaluating the effects of this new trend.
Manulife US REIT (SGX: BTOU) reported that the US office leasing market saw a 47.3% year on year plunge in leasing volume due to telecommuting and lockdowns.
Prime US REIT (SGX: OXMU) announced that there was still “some uncertainty” on its outlook as tenants review their space requirements and flexible working arrangements.
Industrial has emerged as the most resilient REIT sub-sector during this pandemic.
Mapletree Industrial Trust (SGX: ME8U) reported a 3.8% year on year increase in its DPU for its fiscal 2021 third quarter, boosted by data centres it acquired in the US last year.
And Keppel DC REIT (SGX: AJBU), a niche data-centre REIT, reported a 20.5% year on year jump in DPU to S$0.0917 on strong leasing demand for data centres.
These REITs should remain resilient as they have a diversified, financially-strong list of tenants that can weather this crisis.
It’s a case of differing fortunes depending on which sub-sector a REIT is in.
Hospitality and commercial face continued uncertainty due to the evolving nature of the pandemic.
Retail REITs are seeing signs of recovery though it may take some time for footfall to return to pre-pandemic levels.
Industrial REITs are the least impacted thus far and have even managed to grow their DPU in some cases.
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Disclaimer: Royston Yang owns shares in Keppel DC REIT.