(Oct 30): Several real estate investment trusts have begun trading ex-dividend over the past two weeks. Among them are Soilbuild Business Space REIT, Keppel REIT and ESR-REIT. It may be a good time for investors to examine their positions in these REITs, given that their incomes have come under some pressure.

Soilbuild REIT traded ex-dividend on Oct 20. Its cash distribution of 1.374 cents a unit will be paid on Nov 20. Analysts have tempered their expectations for the REIT, as it is dealing with several tenants that are struggling to pay their rents. Master lease tenant NK Ingredients is currently in default. And while Soilbuild REIT has called upon an insurance guarantee for $5.1 million and received $3.4 million of that sum on Oct 10, analysts are sceptical that NK Ingredients will be able to pay the remaining arrears of $3.4 million. Another tenant, KTL Offshore, is still in arrears of about seven months of rent, or $2.7 million.

On Oct 13, the REIT reported its results for 3QFY2017 ended September. Revenue increased 4.1% to $20.5 million but distributable income declined 0.8% to $14.4 million.

Derek Tan, an analyst at DBS Group Research, sees more challenges ahead for the REIT. He is maintaining his “hold” call, with a price target of 62 cents. “With more uncertainties lingering over possible vacancy, owing to tenant defaults accounting for 11% of revenue, and the lack of imminent catalysts, we believe there are more challenges looming,” says Tan in an Oct 16 report.

OCBC Investment Research analyst Deborah Ong shares Tan’s sentiments. She has a “hold” call, with a fair value of 66 cents. “Pending further updates, we keep our assumption of a 65% chance that NK will be unable to repay its arrears within seven days from the call of the insurance bond and will consequently have its lease pre-terminated,” says Ong in an Oct 16 report.

Ong forecasts distributions per unit of 5.7 cents for FY2017 and 5.2 cents for FY2018, which works out to 8.3% and 7.6%, respectively, of Soilbuild REIT’s unit price of 68 cents on Oct 24. Tan estimates DPUs of 5.45 cents and 4.66 cents for this year and next year, respectively, which works out to a yield of 8% and 6.8%. Soilbuild REIT’s current indicative yield is 8.08%.

Keppel REIT and ESR-REIT, meanwhile, traded ex-dividend on Oct 24. Keppel REIT is paying 1.4 cents in DPU on Nov 28. Unitholders can choose to receive part or all of the DPU in scrip. ESR-REIT’s DPU is 0.964 cents, payable on Nov 24.

Both REITs have seen some negative rental reversions and declines in distributable income.

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Keppel REIT’s results for 3QFY2017 ended September showed a modest 1.9% rise in gross rent to $38.5 million. Income available for distribution declined 10.4% on the back of lower rental support, lower share of results from associates and lower interest income.

Vijay Natarajan, an analyst at RHB Research Institute Singapore, says the results were in line with expectations. However, he is worried about negative rental reversion rates. “The sharp, negative rent reversions came in despite an uptick in overall Grade-A office rents (CBRE Group estimates a 2% increase q-o-q in 3Q2017), which is a cause for concern. The negative rent reversions also highlight management’s leasing strategy of maintaining occupancy amid a huge incoming supply,” says Vijay in an Oct 19 report.

He maintains his “neutral” call, with a price target of $1.05. He forecasts DPUs of six cents for both FY2017 and FY2018, which works out to a yield of 5% based on Keppel REIT’s close at $1.20 on Oct 24. The REIT currently has an indicative dividend yield of 4.69%.

ESR-REIT’s results for 3QFY2017 saw revenue drop 1.9% to $27.1 million, while income available for distribution dipped 2% to $12.6 million. This was mainly driven by the loss of revenue during the transition of properties from single- to multi-tenanted, increase of property expenses because of the transition, higher maintenance costs and property divestments.

CIMB Research analyst Yeo Zhi Bin says ESR-REIT’s results were within expectations. Portfolio occupancy rates fell to 91.1% in 3Q2017 from 95.4% in the previous quarter, owing to the inclusion of a warehouse at 120 Pio neer Road as well as the impact of the non-renewal of CWT’s lease at 3 Pioneer Sector 3. The warehouse at 120 Pioneer Road recently completed an asset enhancement initiative. “We understand the current occupancy of 120 Pioneer Road is in its 30s while that of 3 Pioneer Sector 3 is in the mid-70s,” says Yeo in an Oct 17 report.

Yeo forecasts a weaker 4QFY2017 for ESR-REIT, owing to divestments and lower occupancy at its 3 Pioneer Sector 3 property and an income void at 21B Senoko Loop. A lease with Tellus Marine has been pre-terminated at the latter. “Nevertheless, we reiterate our view that ESR-REIT’s financial performance is bottoming out, as evidenced by its 3QFY2017 results,” says Yeo.

He has a “hold” call, with a price target of 57 cents, and forecasts DPUs of four cents in FY2017 and 4.1 cents in FY2018. That works out to a yield of 7% and 7.2%, respectively, based on ESR-REIT’s Oct 24 close at 56.5 cents.

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