Signs point to solid rise in profits season

The 360 Capital Industrial Fund has set the bar high for the upcoming reporting season with a forecast 9.7 per cent increase for its 2013 operating earnings per unit (EPU), based on lower interest rate margins.

The 360 Capital Industrial Fund has set the bar high for the upcoming reporting season with a forecast 9.7 per cent increase for its 2013 operating earnings per unit (EPU), based on lower interest rate margins.

The fund's managing director, Tony Pitt, who confirmed he was still in discussions with Trafalgar Corporate about a possible takeover, said the interest rate margin decrease had led to a saving of between $1.1 million and $1.3 million a year.

"The banks are more competitive and are now prepared to negotiate better terms and, with higher demand for industrial properties, we are able to increase our earnings guidance," Mr Pitt said.

Property analysts said the focus for the 2013 reporting season was expected to be the reductions in margins to keep debt low, in preparation for a round of mergers and acquisitions and some tough construction and office market conditions in the coming year.

For the 2013 year, the average growth consensus for earnings per securities would be about 5 per cent, in a year characterised by balance sheet maintenance, including share buybacks.

But many have said the six months to December would be tougher.

The average forecast 2014 earnings per share growth for real estate investment trusts is about about 5.3 per cent.

JP Morgan analysts said the key risk to REIT returns was further increases in the long end of the interest rate curve.

Australand is the first REIT to report, on July 24, with a consensus interim profit forecast of $68.7 million and a distribution per security of 10.5¢.

The main area of interest is the intentions of its major shareholder, CapitaLand, and the outlook for its residential business.

Singapore's Keppel REIT, which owns interests in office assets across Australia, reported a 6.8 per cent rise in distributable income for the first half of 2013 (it has a December 31 balance date) to $S105.1 million ($90.8 million).

Net property income for the half rose 11.5 per cent to $S66.7 million, compared with the previous corresponding period, due to improved performance from the Singapore Ocean Financial Centre and 77 King Street, Sydney.

In Australia, Keppel REIT owns four premium commercial assets: a 50 per cent interest in 8 Chifley Square and the office tower at 77 King Street, a 50 per cent interest in 275 George Street in Brisbane, and a 50 per cent interest in the new office tower to be built on the site of the Old Treasury Building in Perth. Last month it paid $160 million for a 50 per cent interest in 8 Exhibition Street, Melbourne.

Managers said the limited new supply of prime offices in Sydney's CBD had kept occupancy rates at healthy levels of 93 per cent as at March 31.

"With the rebalancing of growth from mining to other sectors, the prime office markets of Brisbane and Perth posted steady occupancy rates of 91.9 per cent and 94.9 per cent respectively as at end-March 2013," the report says.