In the past few weeks, the REIT sector has been in the limelight with a series of events and earnings announcements. Here are four key REIT events that you need to know as a REIT investor.
1. SPH REIT: Changing management fee practice
Amidst recent spates over the role of REIT managers, SPH REIT came out on the positive side of news in its 2Q17 quarterly release.
In its earnings release, SPH REIT manager has elected to pay ~60 percent of base management fees in cash for 3Q17, rather than its previous practice of 100 percent payable in units. The move favours unit holders as distribution per unit (DPU) growth is strengthened and more sustainable. In 1H17, SPH REIT also registered a rental reversion of 6.2 percent on average for 10.6 percent of its net lettable area (Clementi Mall rental uplift: 8.3 percent; Paragon rental uplift: 4.3 percent).
Analysts at DBS have also pointed out that it is now an opportune time for SPH REIT to consider acquiring The Seletar Mall (~$500 million) from its sponsor. Ideally, the acquisition should be completed within the next six months, i.e. prior to the completion of The Seletar Mall’s first renewal cycle at end-2017.
2. Cache Logistics Trust: Repercussions from takeover of CWT by HNA
Cache Logistics Trust also saw its fair share of coverage by local media as HNA Holding Group extended an offer of $2.33/share to buy CWT (sponsor of Cache Logistics) for a total consideration of $1.4 billion.
As uncertainty over the future of CWT lifts, asset injections into Cache Logistics Trust could accelerate. Previously, there was uncertainty whether the takeover of CWT by HNA will lead to a major restructuring at CWT’s management level.
HNA has since cleared the air and stated its intention to keep CWT’s management team. HNA is expected to be undertaking some capital recycling through Cache Logistics Trust. HNA could also inject its assets into Cache Logistics Trust.
3. Soilbuild Business Space REIT: Loyang Way still a key concern
Soilbuild Business Space REIT saw an increase in both revenue and net property income largely attributable to increase in revenue contribution from Bukit Batok Connection. Portfolio occupancy rate also increased from 89.6 percent to 91.8 percent in the quarter, which was mainly lifted by the increase in occupancy at Tuas Connection. However, Loyang Way remains a key challenge.
According to regulations, 72 Loyang Way must be occupied by marine & offshore clients. Out of the total lease, 70 percent must be leased to one anchor tenant. Since the default of Technics (master tenant), Soilbuild Business Space REIT has been facing difficulties in filling in the occupancy gap left by Technics.
The manager has since sought a regulatory waiver to rent the rest of the 30 percent non-anchored space to non-O&M tenants until 2020. According to DBS, the success in turning around 72 Loyang Way will turn into a key catalyst for re-rating for Soilbuild Business Space REIT.
4. STB’s push to boost tourism boon for hospitality REITs
During the Tourism Industry Conference 2017 that was concluded a few days ago, Singapore Tourism Board (STB) announced fresh initiatives to inject vibrancy into the hospitality sector.
Minister for Trade and Industry S Iswaran shared a slew of new initiatives including a 3-year collaboration with Walt Disney to bring Disney themed events into Singapore, revitalising Orchard Road with pedestrian-only plans and leveraging on big data to help hoteliers better understand visitors.
The efforts by STB is a positive development for hoteliers and hospitality REITs, who have been suffering from an excess supply and weak demand from corporates. While near-term headwinds like supply problems still persist, the long-term outlook on hospitality REITs could be boosted by the collaborative efforts between STB and hospitality providers.