S-Reits enjoying healthy returns

High-yield property investments this year were not from the Central Business District, but tucked in quiet industrial estates on the outskirts of Singapore.

The top three yielding Singapore real estate investment trusts (S-Reits) all focus on industrial properties.

They are Sabana Shari'ah Compliant Industrial Reit, Viva Industrial Trust and Soilbuild Business Space Reit, which have distribution yields of 10.2 per cent, 9.1 per cent and 8.9 per cent.They also posted year-to-date returns of 22.5 per cent, 8.5 per cent and 11.3 per cent respectively, noted a Singapore Exchange (SGX) report last week.

A listed Reit is a vehicle for investment in a portfolio of real estate assets, usually meant for generating income for its unit holders.

Units of listed Reits are bought and sold like other securities listed on SGX at market-driven prices.

They allow investors to access real property assets, or "invest in property", and share the benefits and risks of owning a portfolio of properties.

Reits assets are professionally managed and the revenues generated, primarily rental income, are normally distributed to unit holders at regular intervals.

The SGX S-REIT Index has 37 constituents, comprising 28 Reits, six Stapled Trusts and three Property Trusts, with a combined market capitalisation of $73 billion.

The Index has generated a total return of 12 per cent in the year-to-date, bringing its 12-month return to 14.7 per cent.

This performance is exceptional, when compared to the region, as well as worldwide.

In the year-to-date, it has outperformed the S&P Asia Pacific REIT Index and MSCI World REIT Index, which generated total returns of 1.1 per cent and 0.9 per cent, respectively.

Investors of most S-Reits would also have gotten healthy returns - the 37 constituents maintained an average yield of 6.6 per cent, noted the report.

The top three yielding Reits' performance corresponds with the recovery of the manufacturing sector in Singapore since the last quarter of 2016.

Sabana Reit owns 21 different properties across Singapore, which are classified as high-tech industrial, chemical warehouse and logistics, warehouse and logistics and general industrial.

Viva Industrial Trust currently owns nine properties distributed across Singapore, serving 144 tenants, with 40 per cent of them being in IT, e-business or data centre operations.

Soilbuild Business Space Reit currently owns 10 industrial properties and two business parks in Singapore.

Property consultant firm Colliers International noted in a May 8 report that although leasing activity saw an extended quarterly decline, it expects an improvement in demand soon.

It also predicted that rents would recover 1 to 2 per cent year-on-year by the end of the year.

"Since April, Colliers has seen increased enquiries where potential occupiers are gradually entering the market or taking the opportunity to negotiate and finalise their lease agreements," wrote senior manager of research Pearl Lok.

The top three yielding Reits outlined their rental figures in their first quarter results.

Sabana's multi-tenancy occupancy levels and total portfolio occupancy level were at 80.4 per cent and 87.3 per cent respectively as of March 31.

It is also in the process of selling off its property at 218 Pandan Loop, "in line with the Manager's strategy to divest non-core and underperforming assets".

Viva Industrial Trust's portfolio occupancy improved from 86.9 per cent in the first quarter of 2016 to 91.1 per cent in the first quarter this year. It also secured approximately 95,000 sq ft of lease renewals and new leases this quarter.

Soilbuild Business Space Reit had a portfolio occupancy rate of 91.8 per cent, up from 89.6 per cent in the previous quarter, as of March 31.

"Despite the soft leasing environment, the Manager secured close to 260,000 sq ft of renewals, forward renewals and new leases in 1Q FY2017," said its press release.

In the short-term, analysts also highlighted unique changes that could affect these top yielding Reits.

Philip Capital analyst Richard Leow in a May 11 note wrote that a major merger could be on the horizon involving Sabana Reit, Cambridge Industrial Trust and Cache Logistics Trust.

This comes after e-Shang Redwood Limited (ESR) became a substantial unitholder of Sabana Reit with a 5.01 per cent stake in March.

OCBC analyst Deborah Ong in a May 3 note wrote: "We note that Viva Industrial Trust (VIT) is currently waiting for the outcome of an advance tax ruling on the application of the tax transparency treatment to their rental support income."

She noted that VIT could save on paying income tax on its rental support in the coming quarters if the tax ruling is in its favour.

OCBC analyst Andy Wong in a note last month noted that Soilbuild faces uncertainties when it comes to quickly finding an anchor tenant for its 72 Loyang Way asset. But there is some positive news, as it has obtained approval from JTC to lease out up to 30 per cent of its 72 Loyang Way property's gross floor area to non-oil and gas related tenants.

Collier's Ms Lok said that if growth in the manufacturing sector is sustainable, more transactions will likely take place as "industrialists who have been waiting at the sidelines start to acquire facilities for their operating needs".

It also expect Reits to continue reconstituting their existing portfolio and recycling their capital by divesting lower-yield, non-core buildings.