These 2 REITs Recently Delivered Weaker Quarterly Earnings

We’ve come to the tail end of the earnings season.

As is common with every earnings season, there will be some real estate investment trusts (REITs) posting growth, some REITs posting mixed numbers, and some REITs experiencing declines. So, which are the REITs that have recently reported lower numbers? Let’s look at two of them:

1. In late July, Starhill Global Real Estate Investment Trust (SGX: P40U) released its fourth quarter and full year earnings for its fiscal year ended 30 June 2017 (FY2017).

As a quick background, Starhill Global REIT’s portfolio comprises 11 mid to high-end retail properties in five countries (Singapore, Australia, Malaysia, China, and Japan). Singapore makes up 68% of the REIT’s total assets while Australia and Malaysia collectively account for 29%.

In the latest quarter, Starhill Global REIT’s net property income was flat at S$41.4 million, but its income available for distribution fell by 7.2% to S$26.4 million. Consequently, income to be distributed to unitholders was down by 8.5% year-on-year to S$25.7 million due to straight-line rental adjustments, higher withholding taxes for Malaysian income, and higher cash retention. All told, Starhill Global REIT’s distribution per unit (DPU) for the reporting quarter declined by 8.5% from 1.29 cents a year ago to 1.18 cents.

As for Starhill Global REIT’s future outlook, the following is what Ho Sing, the chief executive officer of the REIT’s manager, shared in the earnings release:

“To lay the foundation for the REIT’s next phase of growth, we have been investing in our assets. Construction works for the asset redevelopment at Plaza Arcade and renovation for the China Property have commenced and handover to the new tenants are as scheduled.

 The rejuvenation project at Lot 10 in Malaysia is making good progress and has seen positive momentum with the opening of the new MRT station in front of the mall since 17 July 2017.

 As part of our proactive capital management strategy, we have secured the commitment to early refinance approximately S$603 million or 53% of our total borrowings ahead of their maturities in 2018, thereby extending the average debt maturity to approximately 4.5 years with no significant refinancing requirement until June 2019.”

2. Frasers Centrepoint Trust (SGX: J69U) also released its latest results in late July. In the third quarter of its fiscal year ending 30 September 2017 (FY2017), the REIT experienced a 3.3% fall in gross revenue to S$43.6 million. This caused net property income to slip by 1.3% to S$30.8 million, leading to distribution per unit falling by 1.3% as well to 3.00 cents.

As a quick introduction, Frasers Centrepoint Trust is a retail REIT with six shopping malls in its portfolio, including Causeway Point, Northpoint and Changi City Point. It also has a stake of over 30% in Malaysia’s Hektar Real Estate Investment Trust (KLSE: 5121.KL), a listed retail-focused real estate investment trust (REIT) in the country. Real estate company Frasers Centrepoint Ltd (SGX: TQ5) is the manager and sponsor, and a major unitholder, of Frasers Centrepoint Trust.

The REIT reported weaker financial metrics across the board, driven mainly by ongoing asset enhancement initiatives (AEI) at Northpoint. Higher revenue from Causeway Point and contributions from Yishun 10 Retail Podium helped to mitigate the revenue decline.

Investors may also want to note that the occupancy rate for the REIT was down from 90.8% in the second quarter of 2016 to 87.1%. The laggards in terms of occupancy rates were Northpoint, Yishun 10 Retail Podium, and Bedok Point.

In its earnings release, Frasers Centrepoint Trust gave some succinct and useful information about its outlook:

“Excluding motor vehicles, retail sales index increased 0.6% year-on-year in May 2017. The asset enhancement works at Northpoint are proceeding on schedule and are expected to complete by September 2017. More than 90% of the reconfigured areas have been pre-committed. Although the general retail sector continues to face structural challenges, FCT’s suburban malls are generally expected to remain resilient.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.