Review of 7 Diversified Real Estate Investment Trusts (Part 2)

In the first part of the article, we have covered these diversified REITs:

• Ascendas REIT (SGX: A17U)

• Ascendas India Trust (SGX: CY6U)

• CapitaLand Integrated Commercial Trust (SGX: C38U)

• CapitaLand China Trust (SGX: AU8U)

In this article, we will be looking at the remaining 3 diversified REITs:

• Cromwell European REIT (SGX: CNNU)

• Starhill Global REIT (SGX: P40U)

• United Hampshire US REIT (SGX: ODBU)

1) Cromwell European REIT (SGX: CNNU)

Cromwell European Real Estate Investment Trust (“Cromwell European REIT”) is a real estate investment trust (“REIT”) with the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of income-producing real estate assets in Europe.

Cromwell European REIT’s portfolio comprises of 96 properties, which are located close to major gateway cities in the Netherlands, Italy, France, Poland, Germany, Finland and Denmark, with a balanced focus on the office and light industrial / logistics sectors.

Cromwell European REIT’s Portfolio

FY2020 Result Highlights

For FY2020, Cromwell European REIT’s gross revenue came in 5.6% higher at €186.97 million, largely due to contributions from newly acquired office assets in France, Italy and Poland and light industrial / logistics assets in Germany.

However, net property income only increased by 1% year-on-year to €117.32 million as a result of higher property operating expenses.

Meanwhile, Cromwell European REIT’s income available for distribution to unitholders declined by 8.0% year-on-year to €89.14 million. The DPU also slipped 14.6% to €3.48 correspondingly due to an enlarged amount of total issued units.

Capital Management

As at 31 December 2020, Cromwell European REIT’s total gross debt increased to €857.4 million. This resulted in the increase in aggregate leverage to 38.1%, 1.3 percentage points higher than the previous year.

Its interest coverage ratio declined slightly by 0.3 times to 6.4 times as at 31 December 2020, primarily due to higher debt load and lower returns for the fiscal year.

2) Starhill Global REIT (SGX: P40U)

Starhill Global REIT is a Singapore-based real estate investment trust investing primarily in real estate used for retail and office purposes, both in Singapore and overseas. Since its listing on the Singapore Exchange on 20 September 2005, Starhill Global REIT has grown its initial portfolio from interests in two landmark properties on Orchard Road in Singapore to 10 properties in Singapore, Australia, Malaysia, China and Japan, valued at about S$2.9 billion.

These comprise interests in Wisma Atria and Ngee Ann City on Orchard Road in Singapore, Myer Centre Adelaide, David Jones Building and Plaza Arcade in Adelaide and Perth, Australia, The Starhill and Lot 10 in Kuala Lumpur, Malaysia, a retail property in Chengdu, China and two properties in Tokyo, Japan.

Starhill Global REIT’s Portfolio

3Q FY2020/2021 Business Update

For 3Q FY2020/2021, Starhill Global REIT’s gross revenue declined by 0.6% year-on-year to S$46.4 million. The decline was mainly due to lower revenue contribution from its Wisma Atria property.

Despite the topline decline, its net property income grew by 0.6% year-on-year to S$35.4 million. The growth was largely driven from the lower rental assistance to tenants affected by COVID-19, lower operating expenses and the appreciation of Australian Dollar.

Capital Management

As at 31 March 2021, Starhill Global REIT’s total debt stood at S$1.12 billion. This translates into a gearing ratio of 35.9%, a good gap from the stipulated limit of 50%.

Meanwhile, its interest cover ratio stood at just 2.5 times, highlighting the low earnings on hand to service its interest expenses. Furthermore, the average interest rate of 3.21% also indicates a high level of interest expenses for the REIT to manage.

3) United Hampshire US REIT (SGX: ODBU)

Listed on the Singapore Exchange on 12 March 2020, United Hampshire US REIT (“UHREIT”) is a Singapore real estate investment trust established with the principal investment strategy of investing in a diversified portfolio of stabilised income-producing (i) grocery-anchored and necessity-based retail properties (“Grocery & Necessity Properties”), and (ii) modern, climate-controlled self-storage facilities (“Self-Storage Properties”), located in the U.S.

UHREIT’s portfolio comprises 22 predominantly freehold Grocery & Necessity Properties, and Self Storage Properties, primarily concentrated in the East coast of the U.S., with an appraised value of approximately US$585.5 million and an aggregate net lettable area (“NLA”) of approximately 3.16 million square feet.

UHREIT’s Portfolio

FY2020 Result Highlight

For FY2020, UHREIT’s gross revenue came in at US$41.6 million, which is 2.2% lower than the forecasted figure in their IPO prospectus. The lower figure was primarily due to rent relief granted to assist tenants in tying through the pandemic as well as provision for doubtful debt and deceleration in leasing activities of the Self-Storage Properties.

However, lower finance costs helped UHREIT’s distributable income and distribution per unit to exceed the previous forecasted figure by 1.3% and 1.1% respectively.

Lease Expiry Profile

For the rest of FY2021, UHREIT faced with a low leasing risk with only 3.4% of leases expiring this year and 9.2% next year. This highlights the stability in its rental income during this tumultuous period given the low percentage of leases due for renewal.

Meanwhile, with the long lease expiry for its portfolio, UHREIT will only face a significant lease renewal risk beyond FY2025 with more than 64.3% of the total leases due for renewal then.

Conclusion

The overall performance for these 7 diversified Reits across both articles have been relatively stable given the impact of COVID-19 pandemic.

Moreover, they have also managed their capital management well with low interest rates and gearing ratio kept below the stipulated 50% ratio set by MAS.

Lastly, with a portfolio of different asset classes to tap on, these REITs looks set to tide through the difficult times and continue delivering good performance going forward.

Day 2 of REITs Symposium will be happening this Saturday, 22 May from 9.30am. Register for free now at: https://rebrand.ly/4475d3