REITS Singapore Round Up – The performance of Singapore’s REITs in 2018
Basically, all Real Estate Investment Trusts (REITs) in Singapore are performing well. According to analysis by Mystocksinvesting.com, the REITs sector is now at fair value. This is to say that most of it is at the value that tends closer to the real market value. This is because it is common for most of REITs to be overvalued or undervalued by the market. As a result, there is a misrepresentation of the price vis-a-vis the correct market price.
According to the analysis, the overall yield for the Singapore REIT is quite attractive. The research puts this rate at an average figure of 6.67% a year. Interestingly, the sectors shows strong numbers in other measures like the distribution per unit (DPU) value. As per myinvestingstocks.com, the average DPU for the market for 2018 so far is greater than 7%. Since this represents data for the small and mid capitalisation REITs, it implies that the whole market is performing exceptionally.
However, in all this murkiness, this article will isolate the best performing REITs and determine how and why they did so well. At the same time, this article will endeavour to find out the worst performing entities and unpack why they did so.
There are different ways in which analysts measure the viability of a REIT investment. However, according to consensus, a good REIT should be able to hand out good returns in terms of dividends. This implies that a REIT is performing well and is experiencing high returns on investments. Based on the metric, below are 5 REITs that performed well in the three quarters leading up to October, 2018.
Mapletree Logistics Trust
MLT is one of the most excellent performing REITs on Singapore Exchange Limited (SGX) this year. In fact, MLT’s shares have gained the most value this year, putting the REIT ahead of CapitaMall Trust and Ascendas REIT. The Business Times notes that this performance is partly due to a private placement in mid-September. However, the company has reported committed occupancy rates (97.1%), which have boosted income.
This REIT focuses on commercial real estate with most of its portfolio consisting office spaces. The company reported consisted growth the first two quarters of 2018. However, Q3 saw the company report substantial losses due to an overall poor business environment for REITs in Singapore. With an average DPU of 5.6 cents, it remains among the highest dividend payers in the market. During the release of the latest earnings report, the company’s leadership is optimistic the rising rates of occupancy will boost income in both Singapore and Australia.
CapitaLand Commercial Trust
The Motley Fool claims that CCT is one of the biggest surprises of this year. Data compiled by the Motley Fool indicates that CCT has posted a steady rise in income and DPU. As per recent financial statements, the REIT has a market capitalisation of about S$6.6 billion. This is a higher figure compared to 2017 and other previous years. Most of the good performance is due to a growth in business activity in the market which has led to an increase in office space.
Previously known as Cambridge Industrial Trust, ERS-REIT is one of the six largest REITs on SGX. However, it is has outperformed most of its peers during the three quarters covered so far. In the latest earnings report, the REIT 17.6% added to its revenue. According to the report, most of the higher revenues is as a result of various acquisitions that the firm completed late 2017. With DPU increasing by 4.7% in the last three quarters, the company still has great potential for further growth.
Ascendas Real Estate Investment Trust
This is perhaps the largest REIT currently on SGX. Ascendas has delivered strong numbers since the end of 2017, with the trend tracing an upward trajectory. Most of its properties are in Singapore with a significant other in Australia. As of 31st March, 2018, the firm reported a 1.5% increase in gross revenue. However, most interesting is the 4% year-on-year increase of the REIT’s DPU. Also, the REIT boasts an occupancy rate of 90.5%.
Nonetheless, there are REITs that have seen poor performance during the most part of this year. For their own varied reasons, they have posted negative growths in revenue with their DPU also decreasing. Below are a few of those poor performers.
Lippo Malls Indonesia Retail Trust
Lippo Malls Indonesia Retail Trust (LMIRT) has had one of the most interesting performances this year. Although the overall year-long trend depicts a falling graph, most analyses indicate that the REIT is grossly undervalued.
Particularly, the company has performed quite poorly for the most of this year due to unfavourable tax regulations. The Motley Fool predicts further poor performance in the coming months. For this reason, it may not be able to sustain the high yields that it is offering at the moment.
According to the Business Times, LMIRT’s net property income declined by 6.2% in the first half-year. This is alongside a 29.1 % slide in distributable income during the same period.
Frasers Logistics & Industrial Trust
This REIT has spent most of the year in the red. This is probably due to the fact that the REIT spent most of 2017 acquiring new assets. According to The FifthPerson, an industry news outlet, FLIT acquired about 10 properties within the two year period of 2016-2017. As per the report, most of the properties are yet to cover their cost margin. Therefore, this has depressed the REIT’s earning for most of 208. As per The FifthPerson, the REIT saw a revenue growth from S$39.7 million in Q1 2017 to S$42.4 million in Q1 2018. However, it seems difficult to replicate the growth in the succeeding two quarters partly due to the fact that the acquired properties are yet to provide substantial profit margins. Also, some properties situated at Melbourne Airport, the Adelaide Airport, and the Perth Airport under FLT’s ownership could face automatic lease automatic termination. This is due to the provisons of the Airport Act 1996. Per the Act:
“One of the requirements is that the Airport Ground Leases will terminate automatically in favour of a party that is in a position to exercise control over the whole or substantial part of the relevant properties.”
As a result, the outlook for the REIT is unfavourable.