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2 REITs That Have Increased Their Distribution Per Unit Recently

Lawrence Nga

Earnings season is here again!

Real estate invement trusts (REIT) have always been one of the favourite investment choices for risk adverse investors due to their stable earnings qualities. In this article, we will look at two REITs that have lived up to their investors’ expectations by delivering positive performance in their recent earnings updates.

The first REIT that has performed well is Keppel DC REIT (SGX: AJBU).

As a quick introduction, Keppel DC REIT is a REIT that owns data centres. Listed on December 2014, the REIT manages 15 data centres in Asia and Europe.

For the quarter ended 30 September 2018, gross revenue grew 34.0% year-on-year to S$47.6 million while net property income (NPI) improved by 33.4% to S$ 43.0 million. The stronger performance was due to contribution from the acquisitions of Keppel DC Singapore 5, the maincubes Data Centre, and Keppel DC Dublin 2. As a result, distribution per unit (DPU) was up by 6.3% compared to the same period last year to 1.85 cents.

As of 30 September 2018, the REIT’s gearing and occupancy ratios stood at 32.0 % and 93.1%, respectively.

In terms of outlook, here’s what the company said in its press release:

“Demand for data centre space in key European and Asian hubs continues to be underpinned by demand from hyperscale cloud players, increasing digitalisation and cloud adoption, data centre outsourcing, and other drivers such as data sovereignty regulations.

According to BroadGroup Consulting, many hyperscale cloud players are only about a third of the way through their planned data centre build-outs, signalling strong potential requirements for data centre space. Improved connectivity as well as the development and adoption of new technologies will continue to drive the growth of data creation and 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.”

The next REIT on the list is First Real Estate Investment Trust (SGX: AW9U) or First REIT.

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

For the quarter ended 30 September 2018, gross revenue increased 5.1% while net property income (NPI) improved 5.4% compared to the same period last year. The improvement was primarily due to contributions from the newly-acquired Siloam Hospitals Buton & Lippo Plaza Buton, and Siloam Hospitals Yogyakarta, as well as increased rental income from existing properties. As a result, the REIT’s DPU came in higher at 2.15 cents, up 0.5% compared to the same period last year.

Mr Victor Tan, asset manager of First REIT, made the following comment:

“Contributions from our latest acquisitions and existing properties continued to bolster the Trust’s revenue and NPI in the third quarter. The proposed acquisition of Bowsprit by OUE Lippo Healthcare Limited will be one of our growth drivers. First REIT will then be able to access a more diversified pool of assets via the right of first refusal agreements granted by both OUE Lippo Healthcare Limited and PT Lippo Karawaci Tbk for their portfolios. This will effectively expand First REIT’s geographical catchment within Asia, allowing the Trust to potentially pursue more yield-accretive acquisitions to deliver stable returns to our Unitholders.”

Investors may want to note that OUE Lippo Healthcare Ltd (SGX: 5WA) announced in mid-September that it is looking to acquire a 10.63% stake in First REIT. OUE Lippo Healthcare also intends to buy a 40% stake in Bowsprit Capital Corporation Limited, First REIT’s manager. The remaining 60% will be purchased by OUE Lippo Healthcare’s parent, OUE Ltd (SGX: LJ3). First REIT’s sponsor, Lippo Karawaci has close ties to the two OUE entities.

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