REIT-PHILIP(RESULT REVIEW)

From the recently concluded financial results for the quarter ended 30th June 2009 (except Saizen REIT which is announcing on 27 August 2009), we observed that on a year-on-year basis, out of the 18 REITs that have announced their results, twelve reported revenue growth, one REIT reported flat revenue growth while five REITs reported negative revenue growth. Accordingly, nine REITs registered DPU growth while the other half have DPU erosion. A closer observation reveals that the hospitality sector fare the worst with both Ascott REIT and CDL Hospitality REIT recording decrease in gross revenue as well as lower DPU. For industrial sector, all four industrial REITs recorded lower DPU although only MacarthurCook Industrial REIT recorded lower gross revenue. The office and retail sectors prove to be more resilient with most of the REITs reporting higher gross revenue as well as DPU. The most stable sector continues to be healthcare.

On a quarter-on-quarter basis, eight REITs reported revenue growth, one REIT reported flat revenue growth while nine REITs reported negative revenue growth. Accordingly, eleven REITs have DPU growth while six have DPU erosion and one with constant DPU.

The sectoral performance came as no surprise to us as we have long espoused the same order of revenue stability. The hospitality sector shows the greatest revenue volatility because revenue is sourced from direct visitor stays and these are mainly short term in nature compared to the tenant leases of the other sectors which are longer term and have locked-in rates. The industrial sector REITs have stepped-up rent escalation while the office sector REITs are still enjoying positive rental reversion from expiring leases. However from the quarter-on-quarter performance, we can see that the gross revenue for the industrial, office and retail sectors have all declined compared to mostly increases for the year-on-year performance. This may indicate higher vacancies or lower reversionary rents. While the hospitality REITs scored the worst performance on year-on-year basis, the quarter-on-quarter results provide some degree of respite. Ascott REIT has turned in a revenue growth and CDLH Trust recorded a much lower percentage of revenue decline. This could indicate that the tourist arrivals are picking up and we believe the hospitality sector would be the first sector to show signs of a recovering economy.