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Earnings Season: 2 REITs To Watch

The earnings season is back with numerous companies and real estate investment trusts (REITs) releasing their earnings updates over the next few weeks. Among the REITs that are releasing their results, I am keeping a close eye on two REITs in particular that have recently made major acquisitions and/or disposals that can impact their distributions. This earnings update will give investors a clearer picture of their post-dealing position.

Frasers Logistics and Industrial Trust (SGX:BUOU), will release its earnings update on Wednesday, 1 August 2018. For the quarter ended 31 March 2018, it delivered a strong showing as gross revenue climbed 6.4% while distributable income rose 3.2%.

In June, the trust completed its acquisition of 17 properties in Germany and four in the Netherlands, marking its maiden entry into Europe. The acquisition was funded by a mix of new equity fund and debt.

In its pro forma estimates, the management said that the acquisition of the new properties would have raised distribution per unit by 1.7%, after taking into account the enlarged unit base. Its gearing would have increased to 36.8% from 30.9%.

The REIT, in a separate announcement made late in June, said that it would be divesting one property (80 Hartley Street) in Australia. The sale price of A$90.5 million is 40.3% above the book value as at March 31 2018, and 39.2% premium over the purchase price. Consequently, the sale will likely increase the net asset value of the trust. It is expected to be completed no later than October 2018. Proceeds will be used to fund other acquisitions, reduce existing debt or distribute to unitholders.

Following the sale, Frasers Logistics and Industrial would have a portfolio comprising 60 properties in Australia, 17 in Germany and four in the Netherlands.

Fortune REIT (SGX:F25U) will release its interim results for the six months ended 30 June 2018 on Saturday, 28 July. Unlike other REITs in Singapore that have quarterly updates, Fortune REIT only releases an earnings update every six months. As such, investors might have a lot to catch up on.

In 2017, Fortune REIT delivered a  strong showing with revenue up 2.8% and distribution per unit up 3.8%. In addition, rental reversions for the year were at a positive 12.8%, accelerating from the first half of 2017, which recorded positive rental reversions of 10.7%.

In December 2017, the REIT announced that it would be disposing of its 9th largest property, Provident Square, for HK$1.98 billion. The sale price represents a healthy 88.5% premium over its book value and is 3.1 times higher than its purchase price. HK$1.1 billion will be used for debt repayment, with the rest being used for asset enhancement initiatives, investment opportunities and other expenses.

Consequently, the sale will lower its gearing ratio to approximately 25.6% but also lower its net property income and distribution to unitholders. It will be interesting to see the distribution impact when it releases its results and whether the trust will put its larger debt headroom to good use in the future.

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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 Jeremy Chia owns units of Frasers Logistics and Industrial Trust.