Investors who have not put their money in the markets probably are expecting bad financial results for months to come.
SPH fired the first shock when it announced the dividends will be cut by 77% compared to the previous quarter despite an increase in distributable income by 12%.
7 REITs have since reported their 1 Jan till 31 Mar 2020 results which covered the COVID-19 period. Here are the summary and commentary of the results.
2 Commercial REITs cut DPU between 49% and 67%
Commercial REITs have cut DPU to conserve cash while Industrial and Logistics REITs have maintained their dividends. This means that the malls and offices are hit more than the industrial properties during COVID-19.
I did a quick estimate previously and said that Retail REITs may cut DPU by 48%. Seems like the situation has truly unfolded.
Please don’t jump at the 100% dividend drop for Starhill Global REIT. It isn’t exactly the case. Starhill Global REIT has switched to semi-annual distribution frequency and unitholders should expect higher DPU in Q4.
Also, the manager of Starhill Global REIT is reducing the base management fees by 10% for three months effective from April 2020. This is commendable and I think other REITs should follow because unitholders and tenants have suffered. REIT managers should play their part by reducing fees.
Mapletree Commercial Trust (MCT) has decided to retain S$43.7 million by lowering the DPU by 61% compared to the same quarter last year.
Frasers Centrepoint (FCT) has retained 50% of the distributable income.
These REITs are preserving cash as they intend to help the tenants with rental relief and support over the next few months.
Unitholders can feel the impact on commercial REITs right now as the DPU are heavily reduced.
Frasers Centrepoint is not meeting the 90% distribution for tax transparency this quarter
Most of the REITs have distributed over 90% of their distributable income except Frasers Centrepoint.
This is deliberate as the management wanted to conserve cash by retaining part of the distributable income.
MAS has granted a 1-year extension for REITs to meet the 90% distribution requirement. It is an extension and not a waiver so this means that REITs have to catch up by increasing the DPU in the future, hopefully the situation gets better.
The funny thing is that you would have noticed MCT could still meet the 100% distribution requirement despite lowering DPU by 61%.
This is because they utilised the capital allowance to reduce the distributable income. You can see that in their distribution statement from the year-end results. There was a high and unusual $36.66m expense to reduce the distributable income. As such, MCT would still comply with the tax transparency requirement.
REITs’ income was less impacted than you think
REITs’ Net Property Income (NPI) were still good in general. MCT even registered 13% growth in NPI! Only Starhill Global REIT’s NPI was down by 11%.
This means that the tenants were still paying rent. But of course we should be privy of the fact that it was business as usual for first two months of 2020. It was the later part of March 2020 that the measures were implemented and the malls and offices started to see the impact.
Hence we should expect the next quarter results to be worse than this for the Commercial REITs, considering Singapore is on ‘Circuit Breaker’ mode for April and May.
The impact to Industrial and Logistics REITs is still unknown but looking good for now.
Good analysis!
Thank you Alvin!
> There was a high and unusual $36.66m expense to reduce the distributable income. As such, MCT would still comply with the tax transparency requirement.
Can you comment more on this unusually large expense of MCT? It is effectively cutting half of the DPU for Q4. Looks like smart but dishonest management using accounting tricks to steal money from shareholders.
I won’t make the dishonest judgement. It is more of a situation that they have little choice but to withhold dividends in order to stay alive and to help tenants stay afloat. But that said, they are the only REIT so far to do it. And they can still give the dividends later if they want to. Hence i think it is too early to judge.