With the earnings season over, we will summarize the ups and downs of every REIT/ investment trust and rate their financial performance in this six-part series. To begin the series, here are four of the most disappointing trusts that let investors down in the latest quarter.
Investors Takeaway: 4 REITs/ Investment Trusts That Let Investors Down This Quarter
- OUE Hospitality Trust
With the absence of income support for Crowne Plaza Changi Airport, OUE Hospitality Trust saw its DPU decline by 2.9 percent year-on-year. That being said, the hotel was still receiving minimum rent from its master lessee in FY18 and improving its operational performance. With the ongoing ramp-up of Terminal 4 as well as opening of Jewel Changi Airport in 1H19, CIMB believes that Crowne Plaza Changi Airport will start to receive variable income in FY20F.
Another reason for the fall in DPU was Mandarin Orchard Singapore’s revenue decline. This was due to lower F&B sales on weaker banquet revenue, albeit partially mitigated by better performance from its F&B outlets. This offset the stronger RevPAR performance from Mandarin Orchard Singapore, which was outperforming its peers.
BUY, TP $0.85, REIT Report Card Rating: C
- Frasers Hospitality Trust
Frasers Hospitality Trust is one of the few S-REITs to register a soft start to the year with 1Q19 DPU falling four percent year-on-year. The decline in DPU was attributed to weaker performance from the Malaysian and Japanese markets.
4Q18 net property income (NPI) for Malaysia fell 34 percent year-on-year as the Western Kuala Lumpur faced the twin challenge of increased new room supply and weak corporate demand. The fall in RevPAR, combined with lower F&B revenue, led to falling gross operating revenue and gross operating profit. Going forward, DBS notes that the Kuala Lumpur market will continue to remain challenging.
In Japan, Frasers Hospitality Trust’s Japan property, ANA Crowne Plaza Kobe, suffered from the residual impact of recent renovations to the ballroom wall. On the back of lower banquet revenue, both gross operating revenue and gross operating profit also suffered.
There was still some silver lining for Frasers Hospitality Trust. Despite the overhang from Brexit, the UK properties delivered the fastest NPI growth of 14 percent year-on-year among Frasers Hospitality Trust’s global portfolio. Frasers Hospitality Trust is also exploring the potential sale of Sofitel Wentworth Sydney, which will allow Frasers Hospitality Trust to recycle capital into higher-yielding or faster-growing assets.
BUY, TP $0.78, REIT Report Card Rating: C-
- OUE Commercial REIT
Both 4Q18 and FY18 DPU for OUE Commercial REIT came in weak after accounting for the recent additional shares on issue. This was largely due to OUE Downtown contributing only two months of earnings but DPU was fully impacted by the additional shares from the rights issue.
OUE Commercial REIT saw multiple of properties suffer from weaker occupancy such as OUE Bayfront, One Raffles Place and OUE Downtown. This was despite a positive rental reversion in these properties. Another property that is facing headwind is Lippo Plaza, owing to more cautious demand arising from the current macro uncertainty and headwinds from a weaker Renminbi.
However, DBS believes that OUE Commercial Trust will still be an attractive laggard play for investors seeking exposure to the expected multi-year upturn in the Singapore office market. Given that OUE Commercial Trust has a forward yield of 6.9 percent while large cap office REITs are still at four percent yield, there should be increased investor interest to drive OUE Commercial Trust’s share price.
BUY, TP $0.60, REIT Report Card Rating: C
- Netlink NBN Trust
Despite a year-on-year revenue growth, NetLink NBN Trust (Netlink Trust) saw its net profit fall by 9.4 percent, falling short of market expectations. That being said, residential fibre connections grew by a healthy 10.2 percent year-on-year and 3.5 percent quarter-on-quarter due to accelerated migration to fibre for broadband and pay-TV. In particular, Starhub is migrating all its customers for both residential broadband and pay-TV to an all-fibre network and retire its legacy hybrid fibre-coaxial (HFC) network.
Moving forward, there are plenty of growth opportunities for NetLink Trust. NetLink Trust will expand its network coverage to new housing estates at Sengkang, Punggol and Tengah. It will also be supporting telcos to serve new end-users for non-residential and NBAP fibre connections. More importantly, NetLink Trust is well positioned to support Smart Nation initiatives, development of Jurong Innovation District and Punggol Digital District, and the fourth mobile operator.
On a longer term horizon, the management is closely monitoring developments on the roll-out of 5G networks in Singapore. Since 5G requires more fibre connections for fronthaul and backhaul networks, the management is open to supporting the development of telcos’ 5G networks through investments.
BUY, TP $0.92, REIT Report Card Rating: C+