Real Estate
Better prospects for warehouses this year
Nisha Ramchandani
15 April 2021
Business Times Singapore
STBT
English
© 2021 Singapore Press Holdings Limited
Singapore

AFTER pulling off a reasonably resilient performance in 2020 amid a full-blown pandemic, warehouses could see rents pick up in 2021.

However, the performance across the industrial market may vary, with rents for certain segments, such as multiple-user factory space, possibly coming under pressure due to economic uncertainties, according to NUS' Institute of Real Estate and Urban Studies (IREUS).

Last year, the industrial sector weathered the storm better than other sectors such as retail and offices. Rents for warehouses and business parks eased slightly by 1.3 per cent and 1.1 per cent respectively in 2020, while rents for multiple-user factory space retreated by 1.8 per cent.

On the other hand, with safe-distancing measures in place, retail rents sank by a sharper 14.7 per cent in 2020, while office rents contracted by 8.5 per cent as many employees worked from home for the better part of the year.

While the "circuit breaker" put a dent in output in the second quarter of 2020, output picked up pace again as Singapore progressively emerged from the circuit breaker, with the manufacturing sector expanding 10.4 per cent year-on-year (y-o-y) in the fourth quarter of 2020.

In particular, certain clusters, such as the electronics, biomedical manufacturing and precision engineering clusters, saw output rise.

IREUS deputy director Lee Nai Jia said: "Moving forward, the rise in non-oil domestic exports, coupled with the recovery in the Chinese economy, is likely to help sustain industrial output. The electronics cluster is likely to do well, due to the increase in demand for semiconductor chips and other electronic goods."

At the same time, Dr Lee reckons that manufacturers may shelve expansion plans amid the uncertain outlook until demand proves sustainable. He expects rents for multiple-user factory space to remain depressed, while rents for warehouses are likely to improve - barring an increase in stock - on the back of the growth in e-commerce.

Specifically, warehouses which can cater to cold storage may see a surge in demand, stemming from the need to store vaccines and food supplies.

Meanwhile, Dr Lee reckons business parks may benefit should firms with offices in the CBD relocate, lured by the prospect of lower rents. Older business parks, however, which may not be be a good fit for such companies, may see downward pressure on their rents.

A recent report by CBRE Research highlighted that rents for factories and warehouses in the first quarter of 2021 were flat quarter-on-quarter (q-o-q) for both the ground floor and upper floors, while prime logistics rents ticked up 0.7 per cent q-o-q to S$1.39 psf/month.

According to CBRE, leasing for business parks was more muted in Q1 2021, with business park rents in the city fringe and the rest of the island retreating 0.9 per cent q-o-q to S$5.75 psf/month and 1.4 per cent q-o-q to S$3.65 psf/month respectively. Pandemic-linked construction delays have put the supply pipeline for this year at 1.4 million square feet, which may place some pressure on rents, CBRE added.

The loosening of office restrictions since April 5 could gradually put the business parks market on the road to recovery, although at the same time, some companies are transitioning towards a hybrid work model which incorporates flexible working.

"Quality will continue to be a priority for occupiers looking to relocate or expand," CBRE said.

Rents for warehouses and business parks eased slightly by 1.3% and 1.1% respectively in 2020, while rents for multiple-user factory space retreated by 1.8%.

Singapore Press Holdings Limited

Companies & Markets
HOCK LOCK SIEW; S-Reit mergers have mostly been value destructive
Lee Meixian
15 April 2021
Business Times Singapore
STBT
English
© 2021 Singapore Press Holdings Limited
Unusual circumstances may be partly to blame, but purported benefits of revenue enhancement and DPU boosts have also not materialised

ONE plus one has been less than two for most Singapore real estate investment trust (S-Reit) mergers, despite the promises of synergistic benefits and cost savings managers have dangled before unitholders when rallying them to vote for such deals.

This debunks the "bigger is better" adage that investors have been led to believe since the first Reit merger - between ESR-Reit and Viva Industrial Trust - was completed in October 2018.

Data compiled by The Business Times shows the acquirer's (or combined entity's) share price and total returns for most of the five successful Reit mergers disappointing over time.

In terms of share price performance alone, four of them - CapitaLand Integrated Commercial Trust (CICT), Ascott Residence Trust (ART), OUE Commercial Reit (OUECT) and ESR-Reit - have returned between negative 14 per cent and negative 22 per cent since the merger was first proposed.

Unitholders of the target Reits would likewise have seen price declines of between 5 per cent and 20 per cent for these four Reits, calculated using their ex-cash exchange ratio.

In terms of total returns, of the four, CICT has generated a positive 15.6 per cent since its merger was completed, while the rest continue to generate negative returns.

This should not be surprising as operations affected by Covid-19 would have pressured distributions, and some managers also made the choice to hold back some distributions to better manage their cash flow.

The only exception and outperformer has been Frasers Logistics & Commercial Trust (FLCT), which returned 18.5 per cent in price performance since the merger was first announced, and a whopping 51.7 per cent in total returns since its merger was completed in April 2020.

Of course, the Reits' performance have been tied to the fates of the sectors they are focused on, which explains the heavy blow delivered to hospitality landlords ART and OUECT. The latter had acquired OUE Hospitality Trust and its hotel assets such as Mandarin Orchard Singapore and Crowne Plaza Changi Airport.

ESR-Reit's unit price had remained subdued despite the run-up in industrial Reits last year, possibly because of the drama with the foiled acquisition of Sabana Shari'ah Compliant Reit.

For CICT, the negative share price performance since the merger was first proposed in January 2020 could have been due to the continued uncertain prospects for the retail and office sectors, coupled with the law of diminishing marginal returns at work.

CapitaLand Mall Trust and CapitaLand Commercial Trust were already enormous to begin with, with a market capitalisation of more than S$9 billion and S$8 billion respectively before the merger.

A common trend has been that the merged entity trades slightly higher immediately after the merger, before circumstantial factors - in some cases, Covid-19 - cause them to go in the opposite direction.

In fact, all of them - except for FLCT - have not recovered to levels before March 2020 when S-Reit prices went into a freefall. This was when the severity of the pandemic was just becoming clearer, and fuelled mass selling by institutional funds as well as margin calls from private banks.

For FLCT, it had the blessing of its logistics assets which rode on increased demand driven by the e-commerce boom amid country lockdowns.

In fact, an analysis by Morgan Stanley analyst Wilson Ng showed that it even outperformed industrial Reit giants Ascendas Reit, Mapletree Logistics Trust and Mapletree Industrial Trust from the time its merger was first announced. It is also gradually narrowing its trading discount to these three Reits.

Still, many Reit managers may argue that there is merit to Reit mergers given the boost they can lend to trading liquidity and index inclusion. But that is not enough for unitholders.

Gabriel Yap, executive chairman of investment firm GCP Global, said that most of the Reit mergers have failed to deliver higher net property income and distributions, which should be the natural result of cost savings and other synergies between two portfolios or asset classes.

"If revenue enhancement and cost savings are not coming through, there's really no compelling reason for a merger," he said.

"In many acquisition attempts (in general), management will always paint it as 'one plus one equals three' and hence pay a very high value in terms of goodwill. But over the years, some of this goodwill never materialises and is eventually written off."

Perhaps besides the usual merger terms and advantages, Reit managers should consider including details of how exactly they plan to derive the purported cost savings and synergistic benefits post-merger.

For instance, they could quantify the expenses that they expect to be reduced, as well as detail the types of acquisition assets they have in the pipeline and asset renovations or re-positioning plans and how much these are expected to add to net property income or distributions per unit.

A comprehensive timeline of targets and deliverables, as well as post-merger updates, will also be appreciated by investors, and will help to keep Reit managers accountable to the benefits that they expound on so eloquently when they want to push the deal through.

OUE Commercial Reit acquired OUE Hospitality Trust and its hotel assets such as Mandarin Orchard Singapore and Crowne Plaza Changi Airport, and its fate is tied to the hospitality industry which is affected by Covid-19.

Singapore Press Holdings Limited

good news for KDC, right?

hopefully share prices rebound to $3.