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2 REITs to Watch This Week

Earnings season is upon us once again. This week I will have my eyes peeled on two REITs, in particular, that will be releasing earnings updates for the first quarter of 2018. They are KEPPEL DC REIT (SGX: AJBU) and CapitaLand Commercial Trust (SGX: C61U).

Riding on the growing global cloud infrastructure market

KEPPEL DC REIT had a good year in 2018 with distributable income and distribution per unit (DPU) up by 29% and 5.7% respectively. With its portfolio of data centres around the world, KEPPEL DC REIT can continue to ride on the growth of the global cloud infrastructure market and as firms choose to outsource data centres, rather than own them.

KEPPEL DC REIT entered into an agreement to develop another data centre on vacant land within one of its existing sites. In the agreement, Macquarie Telecom will sign a new 20-year triple net master lease on both the new data centre and the original Intellicentre 2 data centre on the site. Investors can expect yield-accretion from the development which is scheduled to be completed between 2019 and 2020.

In its earnings update this week, I will be keeping an eye on the latest news on the progress of this development and of course, its distribution per unit. I am also expecting year-on-year revenue growth in the quarter mostly due to income contribution from two data centres it acquired last year – Keppel DC REIT Singapore 5 and maincubes Data Centre in Germany.

CBD office rental market turnaround?

CapitaLand Commercial Trust (CCT) is Singapore’s largest commercial REIT with a market capitalisation of S$6.9 billion. The REIT has a portfolio that is mostly made up of Singapore Grade A office buildings. In the last quarter of 2018, distributable income and DPU jumped 10.7% and 6.7% respectively.

The higher DPU was largely due to the contributions from Asia Square Tower 2 and Galileo but offset by the divestment of Twenty Anson in August last year.

However, more importantly, investors are looking out for a rebound in CBD office prices in Singapore. There has already been a clear upward trend of increasing average rent prices in CCT’s portfolio over the last five years. The chart below shows the occupancy rate and the average office rent since December 2014.

Source: CapitaLand Commercial Trust 2018 Q4 Earnings Presentation

Management has also highlighted that the average expiring rent in 2019 is lower than the market rental rate in the fourth quarter of 2018. This could mean that the REIT could likely continue to report positive rental reversions in 2019.

In the upcoming earnings update, investors should keep an eye on the average rental rates in CCT’s portfolio and the rental reversion rates.

 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore recommends CapitaLand Commercial Trust. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any REITs mentioned.