2 REITS That Have Delivered Weaker Quarterly Performances Recently
Real estate investment trusts (REIT) has been one of the favourite investment choices for risk-adverse investors due to its stable earnings quality. Yet, there is no guarantee that all REITs will continue to perform all the time. With that in mind, we will look at two REITs that delivered weaker performance in their latest quarterly results.
1. The first REIT on the list today is Frasers Commercial Trust (SGX: ND8U).
As a quick introduction, Fraser Commercial Trust is a REIT that focuses primarily in commercial properties. It has ownership stakes in six commercial properties located in Singapore, Australia and United Kingdom. In the Lion City, the REIT’s portfolio includes China Square Central and Alexandra Technopark.
In the latest quarter ended 30 June 2018, gross revenue declined 1.6% year-on-year to S$ 32.5 million while net property income (NPI) fell by 9.2% year-on-year to S$20.4 million. Distribution per unit (DPU) was flat at 2.40 cents compared to the same period last year. The weaker performance was due lower occupancy rate for Alexandra Technopark, a weaker Australian dollar, and higher expenses for the Caroline Chisholm Centre.
On 10 July 2018, Fraser Commercial trust announced the divestment of 55 Market Street for S$216.8 million. Mr Jack Lam, Chief Executive Officer of the Manager commented on the divestment of 55 Market Street:
“55 Market Street is the smallest of our assets and is non-core. Monetizing the asset at a gain of close to S$67 million above valuation and almost tripling the initial purchase price unlocks significant value. It also creates opportunities for us to recycle capital to higher-yielding investments and other initiatives as we continue to reshape and strengthen the portfolio for long-term growth.”
As of 30 June 2018, the REIT’s gearing stood at 35.4%, and its committed occupancy rate was 81.9%.
2. Lippo Malls Indonesia Retail Trust (SGX: D5IU) is the second REIT that reported a weaker results in its latest report.
As a quick introduction, Lippo Malls Indonesia Trust owns retail mails in Indonesia. The REIT has a portfolio of 23 Retail Malls and seven retail Spaces across Indonesia, as of the end of March 2018.
In REIT’s latest quarterly earnings update, gross revenue grew 5.5% to S$ 52.7 million while net property income (NPI) declined by 7.8% to S$ 43.2 million, respectively, compared to the same period last year. Distribution per unit (DPU) plunged 34.4% (in Singapore dollar term) year-on-year to 0.59 Singapore cents. The weaker performance was driven by the weaker Indonesian rupiah against Singapore dollar (down 9.7% year-on-year) as well as higher property expenses and an increase in income tax as a result of a new regulation passed recently. This new regulation levied a 10% tax on outsourced service charges and utilities recovery charges.
Ms Chan Lie Leng, Chief Executive Officer of the Manager made the following comments on the quarter:
“As anticipated earlier in the year, the Rupiah’s continued depreciation has impacted overall earnings, while the effect of the new tax regulations has also been felt on our bottom line results. On the other hand, we have benefited from our enlarged portfolio, with the three new acquisitions in 2017 contributing to total gross revenue growth. With all our assets, we have continued to exercise astute management of the spaces and tenants to optimise shopper traffic and increase rental earnings. The Trust is not overly-reliant on any single tenant and maintains a diverse mix of international and local brands to attract shoppers. Our portfolio’s occupancy remained high at 93.6%, compared to the industry average of 84.2%, with 10,614 square metres of space renewed in 2Q 2018 at a positive rental reversion of 4.2%.”
As of 30 June 2018, the REIT’s gearing stood at 36.0% while its committed occupancy rate was at 93.6%.