The past week was full of results for the quarter to Sept 30. In some cases, such as Frasers Centrepoint Trust (FCT), Sept 30 was a year-end. FCT had completed the acquisition of 63% of Asia Retail Fund (ARF) it did not own in October 2020. Hence, FCT gets the benefit of almost a full year of five additional suburban malls and an office building. The acquisition enabled revenue, net property income and distributable income to more than double in FY2021 (for the 12 months to Sept 30), while distributions per unit (DPU) rose by 33.7% to 12.085 cents.
Elsewhere, the humour and plain-talking style of Sharon Lim, CEO of Mapletree Commercial Trust’s (MCT) manager, showed through. When asked if work-from-home trends had stabilised, Lim answered: “We are stable at the lowest point. Anything the government lifts will be an upside. What can be worse than today’s WFH arrangement? When the government lifts [restrictions], the traffic will come back and help ARC (Alexandra Retail Centre) that supports the office crowd [at Mapletree Business City].”
On a more positive note, Mr Coconut has opened at VivoCity. Every day, during opening hours, a queue of the young and “young at heart” can be seen snaking along Mr Coconut stalls across Singapore.
During a lively briefing on the morning of Oct 28, Lim pointed out that VivoCity is likely to lose out from VTLs (vaccinated travel lanes) initially because Singaporeans love to travel, while Singapore itself is rarely a destination city on its own. “My sales to tourists were 20%. Now it’s zero because I don’t get the tourists [visiting] Resorts World Sentosa. I am getting support from domestic [shoppers], no support from tourists, no support from WFH crowd,” Lim gripes. “When borders open, I will get back to the good old days. I’m suffering but I will definitely come back in good form.”
Ideally, short-term investors and traders may want to switch to MCT when economies and borders open, tourists and crowds throng VivoCity, and WFH is a thing of the past. But as can be seen from MCT’s chart, investors are already taking a chance on MCT ahead of any reopening.
On a serious note, some unitholders and perpetual security holders of Lippo Mall Indonesia Retail Trust (LMIRT) are somewhat perplexed at the REIT returning capital to them. According to an announcement by the REIT, unitholders were advised that books close on Nov 3 to determine entitlements of DPU of 0.09 cents per unit out of capital for the period July 1 to Sept 30, LMIRT’s 3Q2021.
“The capital component of the distribution represents a return of capital to unitholders for Singapore income tax purposes and is therefore not subject to Singapore income tax,” the announcement said.
For 3Q2021, LMIRT reported net property income of $17.3 million. After expenses, including finance costs of $15.37 million, LMIRT has precious little distributable income. According to LMIRT’s financial statement, there is a deficit of $2.3 million. Hence, the $6.9 million distribution to unitholders, and the $4.4 million distribution to perpetual security holders is from capital. LMIRT’s balance sheet shows that the REIT has $133 million in cash, of which $2.2 million is pledged and $131 million is unrestricted. Of course, REITs carry debt. LMIRT has a lot more debt (of $859 million) than cash. At any rate LMIRT financials show in detail how it has paid these distributions from capital and this undertaking may affect net asset values (NAV) eventually if the REIT is unable to report sufficient cash flow for the distributions over time.
The arithmetic is simple. The REIT ended the quarter to June 30 with $733 million in unitholders’ funds. The distributions to perpetual holders and unitholders were minused off, leaving $721 million in unitholders funds. During 3Q2021, an unrealised gain in foreign currency translation reserve of $29 million was added, boosting unitholders’ funds to $750 million. This amount against a unitholding base of some 7.67 billion units provides an NAV of 9.78 cents per unit (according to the financial statement).
It is not all negative. REITs pay from capital all the time, but they usually have sufficient cash flow to make those payments, be it from operations, or sale of a property.
Was there reason for paying out from capital rather than conserving cash? “The Trust has sufficient financial resources to pay dividends to both our perp and unit holders which we have been doing so on a consistent basis. We remain committed to distribute to both perp and unit holders so that they will continue to support us when we need to tap on the capital market in future. However, this will remain discretionary, allowing us the flexibility to manage the situation should there be a change in the operating environment,” says a spokeswoman from LMIRT’s manager.
