As the latest financial reporting quarter dawn upon us, we shall look at two REITs that are in different segments. The relationship between the two segments is an interesting one given that one is getting impacted by eCommerce while the other is gaining.
This had led to the slowdown in retail segment as shoppers are increasingly buying online which drove the demand for logistic properties that are required for dispatching the items.
In addition, the rising interest rates have weighed in some pressure to REITs that has resulted in higher cost of financing and a narrower yield spread for its investors. Regardless, analysts from UOB Kay Hian Research continue to feel bullish on SREITs.
CapitaLand Mall Trust
For 1Q2017, the Distribution Per Unit (DPU) came in flat year on year (YoY) at $0.0273 within the expectations of the street. Revenue and net property income fell 4.3 percent and 6.1 percent YoY respectively, largely attributed to the closure of Funan in July last year. The management reiterated that the $560 million Asset Enhancement Initiative (AEI) that is ongoing at Funan is on track for completion in 4Q2019. To keep the DPU same as the previous year, the manager retained less distributable income this quarter.
The retail environment is expected to continue to be challenging with the retail sales index declining 4.9 percent YoY in February 2017. High labour costs, competition from online retailers and lower tourist expenditure are putting pressure on the retail industry.
Tenant sales and shopper traffic in the mall of CapitaLand Mall Trust fell 0.7 percent and 0.5 percent YoY respectively. This has resulted in a negative rental reversion of 2.3 percent for the quarter with Westgate being the top loser at negative 10 percent.
Analysts from UOB Kay Hian Research gave CapitaLand Mall Trust (SGX: C38U) a “Hold” call with a target price of $1.95 and was given a forward yield of 5.1 percent.
Cache Logistics Trust
For its first quarter, Cache Logistics Trust reported its DPU lower by 11.7 percent at $0.018. The lower DPU was mainly attributed to the divestment of Changi Districentre 3 and lower rental from 51 Alps. Net Profits Interest (NPI) also fell due to higher expenses from the conversion of master leased assets to multi-tenancies. However, it is still in line with expectations from analysts as it represents 24.6 percent of their full-year estimate.
Cache Logistics Trust is expected to proceed with more capital recycling activities through the sale of its lower-yielding Singapore assets. This comes as the trust have limited debt headroom and its strategy to expand its presence in Australia.
In the current quarter, Cache Logistics Trust divested its Cache Changi Districentre 3 and channelled the funds to an asset in Melbourne. Potentially, Cache Cold Centre and Pandan Logistics Hub which are valued at a total sum of $180 million could be up next for divestment should Cache Logistics Trust find even more targets to acquire for their acquisition-led growth in Australia.
In addition, Cache Logistics Trust found itself in a unique position that investors should not rule out the opportunity of it being acquired. Its sponsor, CWT and ARA Asset Management have both been respectively acquired by HNA Group and a consortium led by the founder of ARA.
Analysts from UOB Kay Hian Research gave Cache Logistics Trust (SGX: K2LU) a “Buy” call with a target price of $0.95 and a forward yield of 8.5 percent.