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The 5 Worst Performing REITs In 2017

The Straits Times Index (SGX: ^STI) started 2017 at 2,881 points and ended the year 18.1% higher at 3,403. Yet, this healthy return does not imply that all types of stocks in the local market did well.

Fortunately for investors who like real estate investment trusts, 2017 was a year in which REITs had a respectable performance; in the 12 months ended 8 January 2018, REITs in Singapore’s market had produced a return of around 18%. But this being said, not every REIT had generated good returns in the past year.

This article is the fourth in a short series which will look at the best and worst performing REITs in 2017. In the first article, I studied three REITs with good returns in the year. In the second piece, I discussed two REITs that did relatively poorly. The third article was about three more REITs that experienced good gains in 2017.

In here, I will focus on three more REITs that did not produce a good return, relatively speaking.

First up, I have ESR-REIT (SGX: J91U), which was previously known as Cambridge Industrial Trust. It invests in industrial real estate and has a portfolio of 48 properties located across Singapore. The REIT’s portfolio has a total gross floor area of 8.2 million square feet as of 30 September 2017.

In the first nine months of 2017, ESR-REIT reported a 6.5% year-on-year decline in net property income to S$58.52 million. This led to an 8.0% fall in its distribution per unit (DPU).

The REIT said in its latest earnings release that the “overall industrial property market is showing some signs of improvement but remains soft despite the improved manufacturing outlook.” It also said:

“The overall price and rental indices for the industrial property market fell by 1.6% and 0.8% respectively compared to the previous quarter. With more supply coming on-stream in the coming quarters, this is likely to put downward pressures on the prices and rentals.”

Including distributions, ESR-REIT’s return in 2017 was 12.0%. At its current unit price of S$0.575, the REIT has a price-to-book (PB) ratio of 0.91.

The second REIT is Soilbuild Business Space REIT (SGX: SV3U), which generated a total return (including distributions) of 14.2% in 2017. Soilbuild REIT invests primarily in business parks and industrial properties  in Singapore. As of 30 September 2017, the REIT has 12 properties in its portfolio, including Solaris, Eightrium, and West Park BizCentral.

2017 has so far been a mixed year for Soilbuild REIT in terms of its business performance. The first nine months of 2017 saw the REIT produce a 7.6% year-on-year increase in net property income to S$55.73 million. But, its DPU fell by 4.2% to 4.329 cents.

Speaking on the environment of its market, Soilbuild REIT commented in its earnings release that “rentals of all industrial properties fell by 4.1% and 0.8% in 2Q 2017 y-o-y and q-o- respectively. The multi-user factories, single-user factories and warehouse rental indices have receded 3.7%, 3.8% and 7.2% y-o-y respectively, whilst business park rentals expanded 2.0% y-o-y.”

The REIT has a PB ratio of 1.0 at its current unit price of S$0.715.

Lastly, I have AIMS AMP Capital Industrial REIT (SGX: O5RU), which, as its name suggests, is focused on industrial properties.

As of 30 September 2017, the REIT has 26 properties in Singapore and one in Australia. Examples of properties held by AIMS AMP REIT include ramp up warehouses such as 20 Gul Way and 27 Penjuru Lane, cargo lift warehouses such as 8 & 10 Pandan Crescent and 10 Changi South Lane, and business park properties such as 1A International Business Park. Its property in Australia is also a business park.

During the six months ended 30 September 2017 (this would be the first half of the REIT’s fiscal year ending 31 March 2018), AIMS AMP REIT saw its net property income contract by 0.4% to S$39.52 million compared to a year ago. The decline in DPU was larger – it fell by 8.2% to 5.05 cents.

The REIT provided some commentary on the demand and supply dynamics for industrial properties in Singapore in its earnings release. It said:

“In the second half of 2017, about 1.4 million sqm of industrial space, including 311,000 sqm of multiple-user factory space, is estimated to come on-stream. As a comparison, the average annual supply and demand of industrial space in the past 3 years were around 1.8 million sqm and 1.3 million sqm respectively.”

2017 saw AIMS AMP REIT generate a total return (again including distributions) of 13.5%. It has a PB ratio of 1.0 at its current unit price of S$1.36.

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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.