2 REITs That Have Delivered Growth In Their Latest 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 delivered pleasing growth? Let’s look at two of them:

1. Last week, Keppel DC REIT (SGX: AJBU) released its 2018 second quarter earnings update. As a quick introduction, Keppel DC REIT is a real estate investment trust that invests in data centres. Its portfolio consists of 15 data centres across Asia and Europe.

During the reporting quarter, Keppel DC REIT’s gross revenue jumped by 21.5% year-on-year to S$41.9 million. Its net property income improved similarly by 21.4% to S$38.1 million. Keppel DC REIT attributed its net property income growth to higher contributions from its maincubes Data Centre and its data centres in Singapore and Dublin. Consequently, the REIT’s distribution per unit (DPU) climbed 4.6% to 1.82 cents.

Keppel DC REIT completed its acquisition of a 99% interest in Keppel DC Singapore 5 on 12 June 2018 for S$295.1 million. As of 30 June 2018, the REIT’s gearing was a healthy 31.7% (REITs in Singapore have a regulatory gearing limit of 45%), and its occupancy rate was 92%.

This is what Keppel DC REIT shared in its latest earnings update on its outlook:

“According to its June 2018 update on Global Economic Prospects, the World Bank forecasts continued growth of the global economy in 2018 although policy uncertainty, geopolitical risks and mounting trade protectionism may dampen this growth outlook.

Demand for data centre space remains supported by both enterprises’ and consumers’ move towards digitalisation and cloud adoption. The trend of data centre outsourcing is expected to continue as large enterprises seek efficient deployment of quality high-redundancy data centre space. Improved connectivity as well as the development and adoption of new technologies will also continue to drive the growth of data creation. These drivers, as well as the tightening of data sovereignty regulations, are expected to fuel demand for data storage requirements in key data centre hubs globally.

Keppel DC REIT, with its established track record and enlarged portfolio of assets, is well-positioned to benefit from the growth of the data centre market. The Manager will continue to seek opportunities to capture value and strengthen its presence across key data centre hubs.”

2. First Real Estate Investment Trust (SGX: AW9U) also released its 2018 second quarter earnings update last week. The REIT focuses on healthcare-related real estate and currently has 20 properties in its portfolio across Asia (16 in Indonesia, three in Singapore, and one in South Korea).

In the second quarter of 2018, First REIT experienced a 5.3% year-on-year increase in gross revenue to S$28.9 million, which led to 5.0% growth in net property income (to S$28.5 million), and a 0.5% uptick in the DPU (to 2.15 cents). First REIT’s growth was driven by contributions from the newly-acquired Siloam Hospitals Buton, Lippo Plaza Buton, and Siloam Hospitals Yogyakarta, as well as higher rental income from its existing properties in Singapore and Indonesia

First REIT ended 2018’s second quarter with a gearing of 34.2% (which is healthy), and an occupancy rate of 100%.

In its latest earnings update, First REIT gave useful comments on the state of Indonesia’s healthcare market, and its outlook:

“Indonesia’s gross domestic product grew 5.06%1 year-on-year in the first quarter of 2018, at a slower pace compared to the previous quarter, due mainly to sluggish consumption. To reduce reliance on domestic consumption, the Indonesian government has implemented several deregulation measures to attract more investment.

Last year, Indonesia recorded 8.5% more foreign direct investment in Rupiah terms than in 2016.2 Meanwhile, rising interest rates in the US have weakened the Rupiah in recent weeks, causing Bank Indonesia to raise interest rates to support the Rupiah. However, this has no impact on the Trust’s borrowings as its loans are originated in Singapore and denominated in Singapore dollars.

BMI Research reported that healthcare spending in Indonesia amounted to Rp403.9 trillion in 2017 and projects it to rise to Rp1,224 trillion by 2027, and that healthcare spending per capita will more than double between 2017 and 20273 . Against this trend, together with the growing nationwide adoption of the national health insurance scheme, private healthcare demand will continue to rise. As such, First REIT remains well-positioned for further growth, with a strong acquisition pipeline of around 40 hospitals in Indonesia from its Sponsor, PT Lippo Karawaci Tbk.”

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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. The Motley Fool Singapore has a recommendation for First Real Estate Investment Trust.