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Here Are 2 REITS That Have Delivered Mixed Results In Their Latest Earnings Updates

We’re in the midst of the earnings season. As is common with every earnings season, there will be some REITs posting growth, some posting mixed numbers, and some experiencing declines. Let’s take a look at two REITs that delivered mixed results recently:

1. In late April, Cache Logistics Trust (SGX: K2LU) released its 2018 first quarter earnings update. As a quick background, Cache Logistics Trust is a real estate investment trust that focuses on logistics properties. It currently has 28 logistics warehouse properties in its portfolio which are located in Singapore, Australia, and China.

During the quarter, the REIT’s gross revenue grew 7.3% to S$29.0 million while its net property income increased by 10.0% to S$22.9 million. But, its distribution per unit (DPU) fell by 12.5% year-on-year to 1.507 cents partly due to an increase in the unit count from a rights issue and the absence of capital distribution in the reporting quarter.

As of 31 March 2018, the REIT’s occupancy rate stood at 97.3%, while its gearing ratio was at 38.5%, which is a little close to the regulatory ceiling of 45%.

Here are the comments from the REIT on its outlook:

“Singapore warehouse rents fell on average 1.0% quarter-on-quarter (QoQ) and 5.7% on a year-on-year basis and warehouse occupancy improved 1.6 percentage points QoQ to 89.1%7. According to Colliers International, stronger leasing demand in tandem with growth in manufacturing GDP and export volumes, alongside an easing supply pipeline, should stabilise rents in 2018.

The Reserve Bank of Australia kept the cash rate unchanged in April 2018 at 1.5%. The Australian economy grew by 2.4% in 2017. The Bank expects faster growth in 2018 as business conditions are positive, non-mining business investment is increasing and higher levels of public infrastructure investment are also supporting the economy. Despite the temporary weakness in exports at the end of 2017, stronger growth in exports is expected this year.”

2. CapitaLand Retail China Trust (SGX: AU8U) is another REIT that released its 2018 first quarter earnings update in late April. The REIT owns retail malls in China.

During the reporting quarter, CapitaLand Retail China Trust experienced an 8.1% year-on-year decline in gross revenue to RMB 267.45 million. Its net property income similarly fell by 7.8% to RMB 179.62 million. But, the REIT managed to post a marginal increase in DPU to 2.75 cents.

The REIT ended 2018’s first quarter with an occupancy rate of 94.9%, lower than the occupancy rate of 96.2% seen a year ago. It has a healthy gearing of 32.5%. In its latest earnings update, CapitaLand Retail China Trust had shared the following useful comments on the state of the retail market in China:

“In 1Q 2018, China’s GDP grew 6.8%1 year-on-year to RMB19.9 trillion. National retail sales increased 9.8% year-on-year to RMB9.0 trillion, while national urban disposable income and expenditure per capita grew 8.0% and 5.7% respectively.

At the annual National People’s Congress and Chinese People’s Political Consultative Conference meeting held in March 2018, the Chinese government signalled a steady growth target of 6.5% for the year. As the shift to development based on improving quality of life continues with a continued emphasis on infrastructure, key market-oriented objectives from the meeting included reining in financial risks and maintaining the exchange rate of the yuan at a reasonable level. The Chinese government further highlighted its support for opening up of markets and regional economic integration, which was also reiterated at the Boao Forum for Asia in April 2018.

Across China’s major cities, upcoming retail supply in 2018 is expected to decline 16% year-on-year, and the decrease is expected to continue to at least 2020. Beijing, Shanghai, Guangzhou, Chengdu and Wuhan – where CRCT’s properties are largely located – will continue to face new supply albeit backed by strong demand, particularly from domestic brands which are heavily invested in tier 1 and 2 cities where the retail landscape remains fundamentally strong.”

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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. The Motley Fool Singapore has a recommendation on CapitaLand Retail China Trust.