Investors love S-REITs because of their attractive yields and stability. That said, there is no guarantee that a REIT’s distribution income will always be sustained, so investors should keep abreast of the REIT’s fundamentals. In this article, we shall highlight three REITs that delivered positive performances in the recent earnings season.
SPH Real Estate Investment Trust (SPH REIT) is sponsored by none other than local media giant Singapore Press Holdings. The REIT comprises the premier upscale retail mall Paragon located along the Orchard Road belt and also the mid-market Clementi Mall in the heartland of Clementi Town.
In October 2017, SPH REIT reported its FY17 earnings result. For the year, net property income (NPI) rose 4.5 percent to $168.1 million, on the back of higher rental income which lifted gross revenue 1.5 percent to $212.8 million as well as better cost controls.
More importantly, both Paragon and Clementi Mall continue to enjoy 100 percent occupancy albeit the muted retail landscape in Singapore. Its portfolio also saw rental reversion of 1.2 percent for new and renewed leases.
Meanwhile, SPH REIT’s balance sheet remains robust as borrowings totaling $847.4 million was just 25.3 percent to total assets, lower than the typical gearing of over 30 percent for S-REITs.
Owing to better financial performance amidst a challenging environment, SPH REIT declared Distribution Per Unit (DPU) of $0.0553 for FY17, up slightly from $0.0550 last year. In FY14, DPU was $0.0547.
Back in August 2017, Shares Investment wrote a piece on “5 Reasons To Like First REIT”. Well, in its latest earnings announcement, the REIT’s performance continued to meet our high expectations.
First REIT is a healthcare trust and its sponsor is PT Lippo Karawaci Tbk and the latter is one of the largest property groups in fast-growing Indonesia. The REIT’s portfolio comprises 18 properties, of which 14 are located in Indonesia, three in Singapore and one in South Korea. Its properties are predominantly hospitals.
In 9M17, gross revenue and NPI rose three percent to $82.4 million and $81.4 million, due to higher contributions from its Siloam brand hospitals. Distributable income also increased 2.4 percent to $49.9 million, as operating expenses were kept in line.
As of the latest quarter, First REIT maintains a low gearing of 32.6 percent of total debt-to-total assets, well below regulatory requirement of 45 percent.
As an owner of hospitals, First REIT boasts one of the best track record in occupancy rates amongst S-REITs, as it has maintained the rate at 100 percent since 2007.
Owing to the strong stability in healthcare properties, First REIT has consistently delivered DPU growth. In 9M17, the REIT managers again lifted DPU, by 1.3 percent to $0.0642 from $0.0634.
BHG Retail REIT
Slightly more than a year ago, Shares Investment initiated coverage for BHG Retail REIT (BHG REIT). In our article titled “Should Investors Pay Attention To BHG Retail REIT”, we highlighted the investment merits of the REIT when it was trading at $0.60 per unit; at a 25 percent discount to price-to-book value. Today, BHG REIT is trading at fairer valuations of $0.75, up by about 25 percent.
In 9M17, BHG REIT’s results continue to outperform as gross revenue rose 2.2 percent to $47.8 million (4.5 percent to Rmb234.2 million) while NPI rose 6.1 percent to $31.8 million (8.5 percent to Rmb155.8 million). Meanwhile, distributable income continues to grow, increasing 8.2 percent to $15.1 million.
The REIT attributed the positive performance to healthy rental reversion and increase in occupancy. Of the five malls under its stable, four are fully occupied while the remaining one reported a 96.1 percent in occupancy rate. Overall, BHG REIT’s occupancy was near full occupancy, at 99 percent as of 9M17.
In face of enormous growth in e-Commerce in China with the advent of Alibaba and JD.com, BHG REIT’s occupancy rate is commendable. This is attributable to the management strategy to increase tenant mix in the experiential segments which make up to 80 percent of the REIT’s net leasable area.
The REIT manager also maintains a pristine balance sheet, with total-debt-to-assets at just 32.5 percent.
Correspondingly, although the REIT lowered payout from 100 percent to 90 percent of the distributable income, DPU still rose 3.5 percent to $0.0415 in 9M17.