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 delivered a weak set of results? Let’s look at two of them:
1. Two weeks ago, SPH REIT (SGX: SK6U) released its third quarter earnings update for its fiscal year ending 31 August 2018 (FY2018). The reporting period was for the three months ended 31 May 2018. As a quick introduction, SPH REIT is an owner of three retail malls in Singapore, namely, Paragon, The Clementi Mall, and The Rail Mall.
During the reporting quarter, the REIT’s gross revenue declined by 2.9% year-on-year to S$51.8 million, while net property income fell by 3.8% to S$40.6 million. Distribution per unit (DPU) remained flat at 1.37 cents compared to a year ago. The weaker performance was mainly due to lower rental revenue from Paragon.
As of 31 May 2018, the REIT’s gearing stood at 25.4%, which is a safe distance from the regulatory gearing limit of 45%.
In its earnings update, SPH REIT gave some useful commentary on the state of Singapore’s retail market and the outlook for its portfolio:
“SPH REIT has a portfolio of two high quality and well-positioned retail properties in prime locations. The Singapore economic outlook has improved and tenant sales from Paragon and The Clementi Mall have registered growth in tandem with the recovery in retail sales since June 2017.
In line with The Manager’s strategy of acquiring yield-accretive retail properties that provide sustainable returns to unitholders, SPH REIT entered into a sale and purchase agreement on 30 April 2018 to acquire a leasehold interest in The Rail Mall with remaining lease tenure of about 28 years. The Rail Mall is a unique cluster of shop units, with opportunity for SPH REIT to further strengthen its current F&B mix and create a differentiated positioning for the asset. The acquisition was completed on 28 June 2018.
The Manager will continue to proactively manage the properties to deliver sustainable returns while seeking new opportunities to create value for unitholders.”
2. Soilbuild Business Space REIT (SGX: SV3U) released its 2018 second quarter earnings update last week. The REIT invests primarily in business parks and industrial properties in Singapore, and its portfolio has properties such as Solaris, West Park BizCentral, Eightrium @ Changi Business Park, and more.
Soilbuild Business Space REIT experienced a sharp 13.1% year-on-year decline in gross revenue to S$18.74 million in the reporting quarter, which led to a similar 13.2% fall in net property income to S$16.25 million. Ultimately, the REIT’s DPU was down by 13.8% to 1.264 cents. Soilbuild Business Space REIT attributed its weak performance to lower contributions from two properties (72 Loyang Way and West Park BizCentral), and the absence of income due to the sale of the KTL Offshore property in February 2018.
As of 30 June 2018, Soilbuild Business Space REIT’s gearing stood at 37.6%, which is close to the 45% regulatory gearing limit for REITs in Singapore.
Here’s a succinct summary of the outlook that Soilbuild Business Space REIT has on its own business:
Source: Soilbuild Business Space REIT earnings presentation
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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.