2 Overseas REITs That Have Performed Well

As the COVID-19 pandemic rages on, government-mandated lockdowns and border closures have exerted a terrible toll on many businesses.

Real estate was not spared either.

As tenants face growing cash flow problems, landlords have had to extend rental assistance packages to help them tide over these tough times.

As a result, many REITs have cut distributions to conserve cash, doling it out to tenants to help them stay afloat.

In case investors may wonder whether the REIT model remains viable, I believe the answer is “yes”.

Though the pandemic is causing significant chaos, the assurance here is that this, too, shall pass.

In fact, some REITs have reported stable or even growing distribution per unit (DPU).

Here are two REITs with overseas properties that have performed well recently.

Elite Commercial REIT (SGX: MXNU)

Elite Commercial REIT invests in commercial assets located in the United Kingdom (UK).

The REIT was listed in early February this year and its portfolio comprises 97 quality commercial buildings with 99% of the REIT’s revenue derived from leases with the UK government.

The tenant for these properties is the Department for Work and Pensions (DWP) which administers the state pension and a range of disability and ill health benefits for around 20 million claimants.

The REIT’s performance from the date of listing till 31 March was stable, with revenue at 0.7% above forecast.

Both income available for distribution and DPU were 1.4% higher than forecast.

Although COVID-19 has led to the UK government announcing a lockdown in late March, the JobCentre Plus outlets under DWP remain open to continue processing and disbursing benefits to eligible claimants.

DWP is positioned as a counter-cyclical tenant, meaning that as the economy tanks, an increasing number of jobless people will approach DWP for benefit claims.

That would mean that DWP remains essential and relevant, and the UK government (as the penultimate tenant) has one of the lowest debt to GDP ratios among the G7 nations.

The REIT has already received 3 months of advance rent collection for the quarter ended 30 June 2020.

Barring unforeseen circumstances, the manager expects the REIT to be able to function without disruptions but will update investors on any material developments.

Cromwell European REIT (SGX: CNNU)

Cromwell European REIT invests in a portfolio of office, logistics and retail assets in Europe.

The REIT’s portfolio consists of 94 properties (as of 31 March 2020) in Denmark, Finland, France, Germany, Italy, the Netherlands and Poland, with a portfolio value of around EUR 2.1 billion.

For the first quarter of 2020, the REIT reported a 21.5% year on year rise in gross revenue, while total return attributable to unitholders improved by 13% year on year.

Average occupancy rate remains healthy at 94.7% at quarter-end, while reversion rate averaged 12.1% for renewed and new leases.

Due to COVID-19, tenant-customers accounting for around 15% of the REIT’s annual rent have temporarily transitioned from paying rent three months in advance, to once a month.

At the same time, the cinema-anchored property in Lissone and Starhotels Grand Milan in Saronno, both in Italy, have had to shut due to the Italian government’s decrees.

Luckily, these properties represent just less than 3% of Cromwell’s rent.

The REIT had also concluded its maiden post-listing acquisition of three light industrial cum logistics assets in March 2020 and initiated the acquisition of a fourth.

The effects of COVID-19 are, as yet, uncertain, and may have an adverse impact on the REIT in time to come.

Though some of the REIT’s tenant-customers are facing financial difficulties, the manager has reiterated that there has been no material financial impact thus far.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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