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These 2 REITs Delivered Weaker Quarterly Earnings Recently

We’re near the start of a new 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. Last week, Cache Logistics Trust (SGX: K2LU) released its 2017 third quarter earnings.

As its name suggests, Cache Logistics Trust is a real estate investment trust that focuses on properties that are used for logistics purposes. Its portfolio currently has 19 logistics warehouse properties in Singapore, Australia, and China.

In the reporting quarter, the REIT’s gross revenue declined by 2.2% year-on-year to S$27.4 million, while net property income fell 3.3% to S$21.3 million. Income available for distribution slipped by 0.8% to S$16.4 million, but the distribution per unit (DPU) sank by 12.8% to 1.541 cents due to a higher unit count from a September 2017 rights issue.

Cache Logistics Trust ended the third quarter of 2017 with an aggregate leverage ratio of 43.6%, which is really close to the regulatory limit of 45%. But, the REIT repaid some of its loans with the proceeds from its rights issue, which brought its leverage ratio down to 35.7%.

On a brighter note, Cache Logistics Trust’s portfolio had a committed occupancy rate of 97.3%, which is higher than the market average of 88.1%.

Looking ahead, the REIT had the following statement in its earnings release: “According to CBRE, a pick-up in leasing demand [for industrial properties] is expected and vacancy rates should stabilise over time.”

2. Starhill Global Real Estate Investment Trust (SGX: P40U) is another REIT that released earnings last week. The latest numbers were for the first quarter of its financial year ending 30 June 2018 (FY2018); the reporting period was from 1 July 2017 to 30 September 2017.

As a quick introduction, Starhill Global REIT has 11 properties in its portfolio. They are mainly retail and office assets, and they are located across Singapore, Australia, Malaysia, China, and Japan.

In the latest quarter, Starhill Global REIT’s gross revenue fell 4.1% year-on-year to S$53.0 million, mainly due to a one-off S$1.9 million pre-termination rental compensation for a retail lease in Wisma Atria that was recorded in the same quarter a year ago.

The lower gross revenue led to a 3.5% decline in net property income (NPI) to S$41.4 million; if the one-off compensation was excluded, the REIT’s NPI in the reporting quarter would have increased by 0.9% year-on-year.

The weakness at the top-line flowed to the bottom-line, as Starhill Global REIT’s income available for distribution was down by 9.3% to S$26.7 million. Consequently, the REIT’s distribution per unit (DPU) fell by 7.7% to 1.20 cents.

The two largest markets for Starhill Global REIT are Singapore and Australia. In its earnings release, Starhill Global REIT commented that “average prime retail rents islandwide in Singapore remained stable, with weakness predominantly in the secondary floors.” But, the REIT also said that “with continual supply pressure in the coming year, retail rental growth expectations are likely to be modest.”

Coming to Australia, the REIT said that “while competition from online platforms persists, international retailers continue to look to rollout stores across Australia over the next five years.”

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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.