Singapore REITs’ performance falls flat in 2Q
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Overall DPU growth sits at -0.1%.
While its retail sector remained resilient, other sectors such as hospitality and industrial have continued to impede Singapore real estate investment trust (REITs)’s growth, registering a flat -0.1% improvement in 2Q16.
Even with the dismal performance, OCBC Investment Research said the REITs’ performance in 2Q is in line with the expectations.
OCBC noted that the strong performances of OUE Commercial Trust, Lippo Malls Indonesia Retail trust and Mapletree Greater China Commercial Trust have offset the underwhelming performance of their peers in the hospitality and industrial sector.
The three registered DPU growths of 34.7%, 16.4%, and 9.1%, respectively.
Overall, the flat REIT DPU growth was amid the decent uptick in net property income at 8.2% and distributable income 5.2%.
“This can be attributed to the regular issuance of new units as partial/full payment of management fees, coupled with REITs which have recently carried out equity fund raising exercises,” OCBC explained.
Meanwhile, it explained how hospitality sector have remained the main drag during 2Q, pointing out to the weakness in revenue per available room for Singapore hotels and revenue for available unite in serviced residences.
“Most industry players highlighted that June was a particularly poor month. We believe this could be attributed largely to the absence of the SEA Games which took place in June last year. Another key factor for the muted performance was due to weaker demand from the corporate sector,” OCBC said.
For the industrial sector, its poor performance came from small-mid cap REITs.
Looking forward, OCBC said the operational performance of the REITs would continue to be be pressured by the macroeconomic uncertainties and supply concerns.
More so, it explained that some REIT managers are making use of the soft environment to carry out asset enhancement initiatives to reposition their assets in the future.
These projects, the report warned, would result in a fall or loss of income contribution in the near future and will eventually mute DPU growth.
Questions & Answers
Q.What contributed to the flat overall DPU growth despite increases in net property income and distributable income?
What contributed to the flat overall DPU growth despite increases in net property income and distributable income?
The flat DPU growth can be attributed to the regular issuance of new units as partial or full payment of management fees. Also, REITs that recently conducted equity fund-raising exercises also played a role.
Q.Which specific sectors within the Singapore REITs struggled and negatively impacted overall growth in 2Q?
Which specific sectors within the Singapore REITs struggled and negatively impacted overall growth in 2Q?
The hospitality and industrial sectors continued to impede growth, both registering a flat -0.1% improvement. The hospitality sector was the main drag due to weakness in revenue per available room.
Q.What factors led to the particularly poor performance in the hospitality sector during June?
What factors led to the particularly poor performance in the hospitality sector during June?
The absence of the SEA Games, which occurred in June last year, contributed to the muted performance. Weaker demand from the corporate sector was identified as another key factor.
Q.What strategic actions are some REIT managers taking during the current soft market conditions?
What strategic actions are some REIT managers taking during the current soft market conditions?
Some REIT managers are undertaking asset enhancement initiatives to reposition their assets for the future. However, these projects are expected to lead to a near-term fall or loss of income contribution.
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