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Here Are 2 REITS That Have Delivered Mixed Results In Their Latest Earnings Updates

We’re near the end of the current earnings season. 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 mixed numbers? Let’s look at two of them:

1. In late July, CapitaLand Commercial Trust (SGX: C61U) released its 2018 second quarter earnings update. As a quick introduction, CapitaLand Commercial Trust is one of the largest commercial REITs in Singapore by market capitalization. It currently owns 10 commercial properties in Singapore and one office asset in Germany.

In the second quarter of 2018, CapitaLand Commercial Trust reported a 12.0% year-on-year increase in revenue to S$98.0 million. Similarly, its net property income (NPI) stepped up by 12.5% to S$77.7 million.  The strong performance was driven by contributions from Asia Square Tower 2 and CapitaGreen, which offset the loss of income from the divestments of One George Street (a 50% interest), Wilkie Edge and Golden Shoe Car Park. Yet, the REIT’s distribution per unit (DPU) declined by 4% year-on-year to 2.16 cents mainly due to an enlarged unit base from a recent private placement and rights issue.

As of 30 June 2018, the REIT’s gearing and occupancy rate stood at 37.9% and 97.8%, respectively.

In its latest earnings update, CapitaLand Commercial Trust shared some useful comments on its outlook:

“Based on data from CBRE Pte. Ltd., Singapore’s average monthly office rent was S$10.10 per square foot in 2Q 2018, an increase of 4.1% quarter-on-quarter. Market occupancy rate was 94.1%, unchanged from 1Q 2018. Consultants expect market rents to continue growing in 2019 given limited new supply in Singapore Central Business District. In relation to CCT, the rise in market rents will narrow the gap between committed and expiring rents for its leases due for renewal in 2018 and 2019.

Frankfurt’s prime office rent market has been resilient through property cycles. With the relatively low new supply completing in 2018 and 2019, along with good pre-letting levels, the prime office rents in the city should be well-supported and expected to grow.”

Kevin Chee, the CEO of CapitaLand Commercial Trust’s Manager, also shared his thoughts about two recent deals that the REIT had made:

“In line with the aforementioned strategy, we undertook two key moves in 2Q 2018 to generate value. On 18 June 2018, CCT completed the acquisition of Gallileo, a Grade A office property in Frankfurt, Germany, at a net property yield of 4.0%. This quality addition to CCT’s portfolio will contribute full-quarter earnings from 3Q 2018 onwards.

On 29 June 2018, we entered into an agreement to sell Twenty Anson for S$516.0 million, translating to an exit yield of 2.7% based on 12 months NPI preceding 31 March 2018, and 19.2% above its last valuation as at 31 December 2017. The divestment is targeted for completion in 3Q 2018. [The sale of Twenty Anson was completed on 29 August 2018.]

With CCT’s successful foray into a new market and a reconstituted portfolio, we are well-positioned to further growth in Singapore and develop depth in select gateway cities.”

2. IREIT Global (SGX: UD1U), which released its 2018 second quarter earnings update in early August, is next in line. The REIT owns five freehold commercial buildings in Germany, located in key cities such as Berlin, Bonn, Darmstadt, Münster, and Munich.

For the quarter ended 30 June 2018, IREIT Global’s gross revenue declined by 1.8% year-on-year to €8.7 million. But, its NPI improved by 0.6% to €7.9 million while its DPU stepped up by 2.8% to 1.49 Singapore cents. IREIT Global had benefitted from favourable currency movements involving the euro and the Singapore dollar. As of 30 June 2018, the REIT’s gearing stood at 38.6% while its committed occupancy rate was at 98.5%.

Here are IREIT Global’s comments on its outlook that it shared in its latest earnings update:

“A combination of healthy business confidence, falling unemployment rate, rising wage growth and accommodative financing conditions has continued to support the European real estate investment market and the take-up of office space.

IREIT’s properties should continue to deliver stable performance for the rest of 2018, as there are no lease expiries during the period. The discussions with several existing tenants for a possible lease extension ahead of their lease expiries in 2019 are ongoing. In respect of Berlin Campus, the Manager is pleased to report that the key tenant, Deutsche Rentenversicherung Bund (DRV), did not exercise its lease break option to return part of its leased space in 2019. On the capital management front, the Manager has also initiated discussions with banks for the refinancing of IREIT’s term loans.”

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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 CapitaLand Commercial Trust.