As part of our goal to help investors better understand REITs, we are starting a new REIT series that aims to give a good summary of REIT performance during every quarter. We hope that through this “Report Card Series”, you can better grasp the important macro trends and factors that impacts the performance of REITs.
While the quarterly reporting for Singapore-listed equities is still underway, we highlight four notable REITs in the first of this series from the office, industrial and retail sub-sector.
- Manulife US REIT
Reporting its first 4Q16 results since its IPO, Manulife US REIT rekindled investors’ confidence in the REIT’s ability to deliver strong results. Manulife US REIT managed to deliver full year dividend per unit (DPU) of US$ 0.0575 which was higher than its IPO forecast of US$ 0.055. Manulife US REIT is looking attractive with a prospective yield of 7.2 percent in the upcoming 12 months.
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Another positive sign from its 4Q16 was the healthy portfolio occupancy at all three of Manulife US REIT’s properties (Figueroa, Michelson and Peachtree). Manulife US REIT’s properties are located in US office markets which has exposure to the favourable demand and supply fundamentals. And thanks to the strength of the US office market, Manulife US REIT managed to achieve double digit rental reversion in FY16.
Growth-wise, Manulife US REIT manager is also in a good position to give the go ahead for DPU-accretive acquisitions following its decline in gearing ratio to drive Manulife US REIT’s next phase of growth.
Performance Grade For The Quarter: A+
- Frasers Logistics & Industrial Trust
Another REIT that also IPO-ed in 2016 is Frasers Logistics & Industrial Trust. Like Manulife US REIT, Frasers Logistics & Industrial Trust also exceeded its IPO Prospectus forecast for its most recent quarterly reporting by 6.1 percent. This was mainly driven by lower-than-expected finance costs.
Frasers Logistics & Industrial Trust occupancy improved to 99.3 percent, which was higher than its listing date occupancy of 98.3 percent. Frasers Logistics & Industrial Trust’s manager continues to proactively engages its tenants before the expiry of their leases.
However, Frasers Logistics & Industrial Trust saw weighted average rental reversion rate go down by 1.1 percent due to new lease and lease renewals in 1Q17. That being said, with less than 4.1 percent of its portfolio up for renewal till end-2018, Frasers Logistics & Industrial Trust has a resilient portfolio for the 12 months ahead.
With an under-geared balance sheet, FLT can provide some upside surprise through acquisitions if it executes its right-of-first-refusal from a myriad of opportunities available from its sponsor, which has 14 existing properties and development pipeline of industrial assets.
Performance Grade For The Quarter: A
- Mapletree Logistics Trust
The logistics environment has not been kind to Mapletree Logistics Trust as the leasing environment was challenging for Mapletree Logistics Trust in 3Q16. Yet, Mapletree Logistics Trust managed to deliver $0.0558 DPU for the nine months into FY17.
With 22.9 percent of its portfolio up for renewal in the upcoming year, there is some uncertainty whether the current set of tenants are going to renew their lease with Mapletree Logistics Trust. According to analysts, out of the 12 single-user assets that are up for renewal, four are likely to be renewed while the two in Singapore are unlikely to be renewed. Renewal of the remaining six assets are still uncertain.
The outlook for Mapletree Logistics Trust is very much in line with its acquisition strategy. In May 2016, Mapletree Logistics Trust issued $250M perpetual securities at 4.18 percent interest. This allows the manager to lock in attractive long-term funding for the REIT to fund acquisitions. They have already deployed close to $313M into acquisitions with yields ranging from 7.1 to 9.9 percent. Moreover, a myriad of acquisition opportunities from its Sponsor, and third parties in Australia, Korea, and China are up for grabs for Mapletree Logistics Trust.
Performance Grade For The Quarter: A-
- CapitaMall Trust
Amid the tough retail climate, 4Q16 has not been a good quarter for CapitaMall Trust. Singapore’s retail sector is undergoing a structural transformation amidst challenging macro-economic conditions and rise of ecommerce. As a result, rental growth has been greatly impacted, having slowed down to one percent. This is in stark contrast to its 10-year average growth of six percent per annum. Other than defensive suburban malls situated in areas with a good catchment population, suburban malls are expected to be in for a rough year ahead.
Although CapitaMall Trust has been actively implementing asset enhancement initiatives (AEIs), redevelopment works are only expected to be completed in end FY19. Mall redevelopment is going to be positive for long-term growth but it will take a few years before they contribute to CapitaMall Trust’s earnings. For example, full contributions from the redevelopment of Funan DigitaLife Mall will only kick in by 2020.
Performance Grade For The Quarter: B-
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