MENU

2 REITS That Have Delivered Weaker Quarterly Performances Recently

Earnings season rolls on in Singapore’s stock market.

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:

The first REIT on the list is Frasers Hospitality Trust (SGX: ACV), or FHT.

As a quick introduction, FHT is a stapled trust that comprises a real estate investment trust and business trust. It focuses mainly on hotels and serviced residences around the world. Right now, its portfolio consists of 15 properties located across nine cities in Asia, Australia, and Europe.

In the second quarter ended 31 March 2018, gross revenue declined 3.1% to S$37.5 million while net property income fell by 4.0% to S$27.8 million. The REIT’s distribution per stapled security (DPS) was down by 7.8% year-on-year to 1.1126 cents, mainly due to lower income available for distribution. The weak performance was due to weaker overall portfolio performance, except for the Japan and Singapore portfolios.

Eu Chin Fen, chief executive of the trust’s managers, commented in the latest result announcement:

“This quarter, our Sydney properties face a more competitive landscape due to softer corporate demand. Post-renovation, Novotel Sydney Darling Square is expected to ramp up its performance in the next few months.

We remain confident of the quality of our assets and will continue to work closely with the respective operators to drive performance. With our debt headroom and the strength of our balance sheet, we will continue to actively pursue acquisition opportunities to support our earnings growth and create value for our stapled securityholders.”

As of 31 March 2018, the REIT’s gearing stood at 33.1%, which is a safe distance from the regulatory ceiling of 45%.

Lippo Malls Indonesia Retail Trust (SGX: D5IU) is the second REIT that has reported weak earnings.

As a quick introduction, Lippo Malls is an Indonesian REIT listed in Singapore.  It has a portfolio of 23 retail malls and seven retail spaces across Indonesia, as of March 2018.

Gross revenue for the first quarter of 2018 grew 1.1% to S$49.1 million while net property income declined by 4.6% to S$ 43.9 million. Distribution per unit declined 24.7% (in Singapore dollar terms) as compared to the same period last year to 0.67 Singapore cents.

The weaker performance was mainly driven by the weaker rupiah against the Singapore dollar, as well as higher property expenses and increase in income tax as a result of a new regulation passed recently. This new regulation, which came about in January this year, levies a 10% tax on outsourced service charges and utilities recovery charges.

Gearing and occupancy rates stood at 35.0% and 94.0%, respectively, as at 31 March 2018.

Chan Lie Leng, chief executive of the REIT’s manager, made the following comments:

“The Trust is certainly exposed to exchange rate fluctuations. The 9.1% weakening of the Indonesian Rupiah against the Singapore Dollar, or rather the strength of the Singapore Dollar over the past one year, has had a significant impact on the Trust’s 1Q performance.

With the Monetary Authority of Singapore’s recent policy stance on the slight increase of the slope of the S$NEER [Singapore dollar nominal effective exchange rate] band from zero percent previously, we expect further depreciation of the Indonesian Rupiah in the coming quarters. We are closely monitoring the exchange rates and constantly exploring new ways to mitigate this inherent foreign exchange risks.”

Motley Fool Singapore analysts have identified a technology mega-trend we believe investors simply should NOT ignore. Tech revolutions of this magnitude usually come along just once or twice in a lifetime, and the companies at the forefront could make a fortune. Click here now for our comprehensive research report laying out the full story... AND one Asian stock we think is poised to win.

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.