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These 2 REITS Delivered Growth In their Latest Quarterly Earnings Updates

A new earnings season is underway.

As is common with every earnings season, there will be some real estate investment trusts (REITs) posting growth, some REITs posting mixed numbers, and some REITs experiencing declines. So, which are the REITs that have recently reported growth? Let’s look at two of them:

1. In the middle of January, First Real Estate Investment Trust (SGX: AW9U) released its 2017 fourth quarter and full year earnings update.

As a quick introduction, First REIT currently has a portfolio of 20 properties (16 in Indonesia, three in Singapore, and one in South Korea) that are mostly healthcare-related facilities. The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.

During the reporting quarter, the REIT experienced a 4.9% year-on-year increase in net property income to S$28.0 million. This flowed to the bottom-line, as its distribution per unit (DPU) came in 0.9% higher at 2.15 cents.

The REIT’s growth was driven mainly by new acquisitions made. They are: Siloam Hospitals Labuan Bajo (acquired in December 2016); Siloam Hospitals Buton (acquired in October 2017); Lippo Plaza Buton (October 2017); and Siloam Hospitals Yogyakarta (acquired in December 2017). Organic growth from existing assets also played a role in the REIT’s results.

In First REIT’s earnings update, Victor Tan, the chief executive officer of the REIT’s manager, shared some positive comments about its financial health:.

“Our financial position remains strong with a stable gearing of 33.6% and an interest cover of 5.5 times as at 31 December 2017. We have also recently secured up to S$400 million in syndicated secured financing facilities, which will be used to partially refinance outstanding bank loans and fund future acquisitions.

Going into the new financial year, we remain steadfast in our commitment to strengthen our portfolio with income-producing assets while keeping our gearing below the regulatory limit of 45%.”

The REIT also provided some colour on the conditions of its market in its earnings update:

“The Indonesian gross domestic product grew 5.06% year-on-year in the third quarter of 2017, compared with 5.01% in the first and second quarters. This was led mainly by a 3.46% rise in government spending and a 7.11% rise in investment in the third quarter.

Over the course of 2017, Bank Indonesia has been very supportive of economic growth and lending, having cut interest rates eight times in 2017. Looking into 2018, the government expects Indonesia’s economy to grow by 5.4%, supported by an export recovery and rising investment, especially with its investment grade rating received from all three major rating agencies.

Against the stronger economic outlook and the on-going national health insurance scheme, demand for better quality private healthcare will continue to grow steadily. First REIT remains well-positioned for further growth, with a strong acquisition pipeline of 39 hospitals in Indonesia from its Sponsor, PT Lippo Karawaci Tbk.”

2. Next up we have SPH REIT (SGX: SK6U), which released its results for the first quarter of its fiscal year ending 31 August 2018 (FY2018) in early January.

The REIT produced net property income of S$42.19 million in the reporting quarter, up 1.9% year-on-year on the back of higher rental contributions from its two properties. SPH REIT is an owner of two retail malls in Singapore, namely, Paragon and Clementi Mall. Its sponsor is newspaper publisher and property developer Singapore Press Holdings Limited (SGX: T39).

DPU for SPH REIT was flat for the quarter, though, at 1.34 cents.

In its earnings update, SPH REIT provided information on its market environment:

“Based on advance estimates of the Ministry of Trade and Industry (MTI), the Singapore economy grew by 3.5% year-on-year in 2017. MTI expects the pace of economic growth to moderate in 2018 but remain firm with forecast of “1.5% to 3.5%”.

International visitor arrivals (IVA) recorded a 4.0% y-o-y growth in the first eight months of 2017. Tourism receipts grew by 10.0% to S$12.7 billion in the first half year of 2017.

The retail sales index (excluding motor vehicles) grew by 2.4% (year-on-year) in Q3 2017 and 2.5% in Q2 2017, reversing the decline in Q1 2017 (1.0%). Key trade segments registered increase in sales in Q3 2017, including departmental stores (4.6%), watches & jewellery(4.5%) and wearing apparel & footwear (4.1%).”

Susan Leng, the chief executive of SPH REIT’s manager added that, “If the recent growth momentum sustains, SPH REIT malls will be well-poised to benefit from it.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.