What’s even better is if REITs can grow their distribution per unit (DPU) over time.
When this happens, income investors can enjoy a growing stream of passive income that will serve them well during retirement.
There are three main methods that REITs use to grow their DPU.
They are — acquisitions, asset enhancement initiatives (AEI) and positive rental reversion.
AEI and rental reversions represent “organic” growth as REITs do not increase their property base but are simply milking their assets for better rental income.
Acquisitions, on the other hand, will help to grow both the REIT’s asset base and DPU.
Here are three REITs that recently announced acquisitions.
Ascott Residence Trust (SGX: HMN)
Ascott Residence Trust, or ART, is the largest hospitality trust in the Asia-Pacific region with total assets under management (AUM) of S$7.7 billion.
Its international portfolio comprises 93 properties across 43 cities in 15 countries.
ART will fork out around S$125 million to acquire four rental properties and a student accommodation property in Japan.
The five properties hold a total of 657 units and are being acquired at an average 4% net operating income (NOI) yield.
The transaction, which will close latest by the second quarter of next year, is estimated to add 1.7% to ART’s distribution per stapled security (DPSS).
Fiscal 2021’s (FY2021) DPSS will rise to S$0.0439, giving ART’s units a trailing distribution yield of around 3.9%.
CapitaLand Integrated Commercial Trust (SGX: C38U)
CapitaLand Integrated Commercial Trust, or CICT, owns a portfolio of retail and commercial properties in Singapore, Australia and Germany.
The REIT owns 20 properties in Singapore, two in Sydney, Australia, and two in Germany with a total property value of S$22.9 billion as of 24 March 2022.
CICT announced that it is partnering with a discretionary fund managed by CapitaLand Investment Limited (SGX: 9CI) called CapitaLand Open End Real Estate Fund (COREF), to jointly purchase a Grade A office building called 79 Robinson Road.
The total consideration is S$1.26 billion and CICT will own 70% of the property after the transaction closes in the second quarter of this year.
79 Robinson Road has a committed occupancy of 92.9% along with a weighted average lease expiry (WALE) of 5.8 years.
The total outlay for CICT will be S$869.2 million and will be funded by a combination of debt and the divestment proceeds from JCube.
The purchase will increase CICT’s asset base to 26 properties worth around S$24.2 billion after completion.
DPU for FY2021 is expected to rise by 2.9% to S$0.1056, giving its units a trailing distribution yield of 4.7%.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, owns a portfolio of 167 logistics properties across eight countries with an AUM of S$11.5 billion as of 31 December 2021.
MLT is expanding its presence in South Korea with the acquisition of a ramp-up logistics property for around S$100.3 million.
The property is a freehold one and is leased to Houser, an e-commerce company specialising in furniture storage, delivery and installation.
The WALE by net lettable area is 5.1 years and the lease has built-in rental escalations.
The acquisition will be funded by debt and MLT’s gearing ratio will end up at 39.6% after the close of the transaction.
It will also be accretive to DPU as the initial net property income yield stands at 4%.
The acquisition will also help MLT to further diversify its portfolio.
China, the largest contributor to AUM in the existing portfolio at 20.7%, will see its contribution reduced to 20.5% while South Korea’s proportion will rise from 9.2% to 9.9%.
As for gross revenue, South Korea’s contribution will increase from the current 7.7% to 8.3% upon completion.
MLT’s weighted average lease term to expiry for its underlying leasehold land is long at 43.4 years.
With the pandemic contribution to the boom in e-commerce, the REIT manager is confident that the tenant can sustain its long-term rental payments to MLT, thus providing a consistent source of cash flow for the REIT.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.