These 2 REITs Delivered Weaker Numbers In Their Latest Quarterly Earnings Updates

A new earnings season is underway.

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 declines? Let’s look at two of them:

1. Last week, Frasers Commercial Trust (SGX: ND8U) released its first quarter earnings update for its fiscal year ending 30 September 2018 (FY2018).

As a quick introduction, Frasers Commercial Trust is a REIT that focuses primarily on commercial properties. At the end of 2017, its portfolio consisted of six commercial properties located in Singapore and Australia.

During the reporting quarter, Frasers Commercial Trust’s gross revenue fell by 11.0% year-on-year to S$35.32 million. The lower revenue resulted in a 14.9% decline in net property income to S$24.86 million, and also pressured the bottom-line. The REIT’s distribution per unit (DPU) slipped by 4.4% year-on-year to 2.40 cents.

Frasers Commercial Trust attributed its weaker performance to lower occupancy rates, planned vacancies for asset enhancement initiatives at one of its properties, and unfavourable currency movements (the REIT reports in the Singapore dollar, but also does business in Australia, as mentioned earlier).

One important recent development with Frasers Commercial Trust is the expansion of its investment mandate in December 2017 to include properties in Europe. To this point, the REIT had entered into a 50:50 joint venture with its sponsor, Frasers Property Ltd (SGX: TQ5), to acquire Farnborough Business Park in the UK.

In Frasers Commercial Trust’s latest earnings press release, Jack Lam, the chief executive officer of the REIT’s Manager, shared some comments on the new acquisition:

“We look forward to the inclusion of FBP in FCOT’s portfolio. FBP is a solid asset with strong fundamentals including a well-connected location, good building quality, a high occupancy rate, long-dated leases and well-established corporate tenants. It will add quality, defensiveness and diversity to FCOT.

We also look to extract further value from FBP by, for example, leveraging on portfolio synergies and market power afforded by the network of business parks, namely Winnersh Triangle, Chineham Park and Watchmoor Park, that FCL owns in Thames Valley.”

2. CapitaLand Commercial Trust (SGX: C61U) is another REIT that released its latest earnings update in late January. The REIT’s update was for 2017’s fourth quarter and the whole year.

As a quick introduction, CapitaLand Commercial Trust has ownership (either full or partial) over 10 commercial properties in Singapore, which includes Capital TowerSix Battery RoadBugis VillageRaffles City and One George Street.

The REIT had endured a mixed quarter. Its net property income for 2017’s fourth quarter fell by 4.0% year-on-year to S$67.96 million, on the back of a 3.8% decline in gross revenue to S$86.29 million. But, its distributable income grew 6.0% to S$75.03 million. After adjusting for a rights issue, CapitaLand Commercial Trust’s distribution per unit (DPU) gained 6.1% from 1.96 cents a year ago to 2.08 cents; without the adjustment, the REIT’s DPU would have fallen by 13.0% from 2.39 cents a year ago to 2.08 cents.

In its earnings release, CapitaLand Commercial Trust had shared some useful insights on its future:

“Based on data from CBRE Pte. Ltd., Singapore’s Core CBD and Grade A occupancy rates are at 93.8% with Grade A occupancy rate tracking an uptick of 2.2%, up from 91.6% in 3Q 2017. Average monthly market rent for Grade A offices rose to S$9.40 psf in 4Q 2017, an increase of 3.3% y-o-y, signaling a recovery in the office market.

While lower net property income is expected in FY 2018 at some CCT properties as expiring rents are higher than current market rent, CCT will leverage rising market rents to close the gap between signing and committed rents. However, there will be flowthrough from negative rent reversions of leases committed in 2017.”

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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.