Industrial real estate investment trusts (Reits) are performing better than expected, but office Reits continue to show signs of weakness, according to Barclays Research.
In a report on Monday analysing seven Singapore-listed Reits (S- Reits), Barclays analyst Tricia Song noted that amid heightened economic headwinds between July and September, Reits stepped up acquisitions to diversify their portfolios.
More Reits also mitigated dividend dips with divestment gains, and issued perpetual securities to lower their gearing, after the Monetary Authority of Singapore imposed a single-tier leverage limit of 45 per cent in July, said Ms Song.
Average distribution per unit (DPU) announced by industrial Reits in the quarter ended Sept 30 rose 5 per cent from the same period a year before, and by 1 per cent from the previous quarter, partly thanks to a policy change.
From Oct 1, JTC reduced the anchor tenant space requirement from 1,500 sq m to 1,000 sq m. "This change is likely to expand the pool of qualified anchor tenants, which we believe will have a positive impact on the leasing market," said Ms Song.
"We expect this rule to benefit Ascendas Reit and Mapletree Logistics Trust (MLT). About 57 per cent of MLT's Singapore gross floor area, or 27 per cent of total gross floor area, is on JTC land and will have to comply with JTC policies."
Even so, the business environment remains challenging, with manufacturing activity in August hitting its lowest point since 2012.
Barclays recently trimmed its DPU estimates for this year to 2017 by an average of 1 per cent to 5 per cent, with the largest cuts in office Reits, due to a grimmer occupancy and rent outlook. It now expects average annual DPU growth of 2 per cent for the period for the S-Reits it covers.
DPU for the third quarter and first nine months across the three office Reits it covers - Keppel Reit, CapitaLand Commercial Trust and Suntec Reit - were below expectations, with two, Keppel Reit and Suntec Reit, being supported by divestment gains, Ms Song noted.
"Rental reversions are still positive although the rate has slowed."
At CapitaLand Mall Trust, the only retail Reit covered in the report, occupancies have rebounded from the lows in the second quarter. But rent reversions continued to soften even as shopper traffic and tenant sales improved.
Across the Reits, asset recycling continues and gains could buffer DPU dips, Ms Song said. K-Reit, for instance, used divestment gains from selling Prudential Tower last year to buffer its operational DPU decline.
So far this year, the FTSE ST Real Estate Index is down 9 per cent, while the Straits Times Index has dropped 11 per cent.