REITs' health check: The good, the bad and the ugly

The REITs sector has been hit by headwinds due to the Covid-19 pandemic.

Certain REITs have remained resilient but others have borne the brunt of the circuit breaker measures and the collapse in tourism.

For investors who rely on a steady stream of dividend income as a source of passive cash flow, knowing which REIT is doing well and which isn’t can allow them to make important capital allocation decisions.

With quite a number of the larger REITs having reported their latest earnings and/or business updates, we survey the landscape to filter out the good, the bad and the ugly.

Do note that this is just a snapshot of how these REITs are performing. As conditions evolve, investors will also need to monitor and update their understanding of each REIT’s prospects.

The good

Not many REITs have escaped unscathed as the pandemic bore down on the sector.

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REIT managers have an obligation to assist their tenants through troubled times, and many REITs have retained some portion of their distributable income for this purpose.

Many REITs have been doling out tenant support measures in the form of rent waivers, reliefs or rebates.

Only a select few have managed to hold their own despite the challenges.

One of these is Keppel DC REIT.

The data centre-focused REIT enjoyed a 46 per cent year on year increase in gross revenue for its latest third quarter, while net property income (NPI) rose 47.6 per cent year on year.

Distribution per unit (DPU) went up 22.1 per cent year on year to $0.02357.

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Another REIT that has performed admirably is Parkway Life REIT, which owns a portfolio of Singapore hospitals and Japanese nursing homes.

The REIT reported that gross revenue inched up 0.8 per cent year on year while NPI went up by 2 per cent year on year.

DPU increased by 7.4 per cent year on year to $0.0354.

The Mapletree family of REITs has also done well thus far.

Mapletree Logistics Trust  reported a year on year rise in DPU of 1.5 per cent, while Mapletree Industrial Trust saw a slight 1per cent year on year decline in DPU for their fiscal 2021 second quarter.

The bad

The retail REITs fall into the category of “bad” as almost all have seen a sharp fall in both revenue and NPI.

The decline was principally caused by both the circuit breaker measures imposed from April through June and the continued social distancing requirements that limit large crowds from gathering in malls.

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Both CapitaLand Mall Trust, or CMT, and Frasers Centrepoint Trust, or FCT, which own portfolios of retail malls in Singapore, saw double-digit declines in revenue and NPI.

CMT reported a 25.3 per cent year on year fall in revenue and a 27.6 per cent decline in NPI for its latest quarter.

FCT reported a 16.3 per cent year on year drop in revenue, while NPI fell by 20 per cent year on year for its full fiscal year 2020 (FY2020).

In terms of DPU, CMT announced a slight year on year increase in its quarterly DPU due to the release of part of the distributable income retained for the first half of 2020.

FCT, however, suffered a 25 per cent year on year plunge in DPU to $0.09042 for FY2020.

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Suntec REIT and Mapletree Commercial Trust both have a mix of retail and commercial properties within their portfolios.

Despite enjoying some buffer from the commercial division, Suntec reported that gross revenue fell 13.4 per cent year on year while NPI fell 19 per cent year on year in the third quarter of 2020. DPU plummeted by around 22 per cent year on year to $0.01848.

Mapletree Commercial Trust was similarly hit, though the negative impact was mitigated by the acquisition of MBC II. For the first half of the fiscal year 2021, gross revenue and NPI were down around 2.5 per cent year on year, while DPU declined by 9.9 per cent year on year.

And the ugly

Several REITs have been unfortunate enough to witness a material decline in their revenue and NPI due to closures of their properties or a sharp plunge in demand.

Hospitality REIT Far East Hospitality Trust was in such a situation. For its third quarter 2020 business update, gross revenue plunged by 33.2 per cent year on year while NPI was down by 36.4 per cent year on year.

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Fortunately, the REIT has master lease rentals in place that pay a fixed rental regardless of occupancy, or the numbers could have turned out much worse.

Lippo Malls Indonesia Retail Trust, or LMIRT, a REIT that owns a portfolio of retail malls in Indonesia, saw gross revenue plunge by 61.1 per cent year on year.

DPU was sharply lower at $0.0007, down 87.5 per cent year on year, due to the closure of almost all its malls for a few months.

While most of its malls have since reopened, they are running on shorter operating hours and the REIT should still see continued pressure on its revenue and NPI in the near-term.

This article was first published in The Smart Investor. Disclaimer: Royston Yang owns shares in Keppel DC REIT and Suntec REIT.