The pandemic has been tough on hospitality and retail sectors.
But the REIT managers are not sitting still.
As Singapore reopens, several REITs have taken the opportunity to expand their investment mandate of the REITs to enable them to invest in a broader scope of properties.
The move allows the REIT to pivot to new types of assets that are more resilient to the pandemic’s effects.
Here are three REITs that are retooling themselves to thrive in the post-pandemic new normal.
Ascott Residence Trust (SGX: HMN)
Ascott Residence Trust, or ART, is a global hospitality REIT with S$7.3 billion in total assets as of 30 June 2021.
The REIT owns 88 properties with more than 16,000 units across 38 cities in 15 countries.
Earlier this year, ART announced the expansion of its investment strategy to include student accommodation assets.
Purpose-built student accommodation (PBSA) assets have leases that typically last for a year and can provide the REIT with more stable income streams.
This new asset class also promises to enhance the stability of ART’s portfolio and offer it a new platform for growth.
In line with the new mandate, ART also concurrently announced the acquisition of a freehold PBSA asset in Atlanta, US, for US$95 million.
The acquisition will increase the distribution per stapled security (DPS) of the REIT by 4.4%.
In June, ART partnered with The Ascott Limited, a unit of CapitaLand Limited (SGX: C31), to jointly invest and develop a freehold student accommodation asset in South Carolina, US, for around US$109.9 million.
The REIT will own 45% of the asset and this development is expected to further increase ART’s DPS by around 2.1%.
Furthermore, ART has the option to acquire The Ascott’s remaining stake in this asset to bring about higher returns for unitholders.
Ascott has also partnered with the developer to develop more PBSA that could become a potential pipeline for ART in future.
CDL Hospitality Trust (SGX: J85)
CDL Hospitality Trust, or CDLHT, is a leading hospitality trust with assets under management (AUM) of about S$2.9 billion as of 30 June 2021.
The REIT owns 15 hotels, two resorts as well as a retail mall in countries such as the Maldives, Italy, Germany, Singapore and Japan.
Similar to ART, CDLHT has also recently expanded its investment mandate.
However, the REIT’s definition is broader and includes real estate used for rental housing, co-living, student accommodation and senior housing.
One month after the change in mandate, CDLHT announced its maiden entry into the build-to-rent sector in the UK with both a land purchase agreement and a development funding agreement worth around S$136 million.
This acquisition is expected to bring about asset class diversification for the REIT and enhance income stability, but the project will only be completed in 2024.
The acquisition will also boost CDLHT’s 2020 DPS by around 2.2%.
CapitaLand China Trust (SGX: AU8U)
CapitaLand China Trust, or CLCT, was formerly known as CapitaLand Retail China Trust (CRCT).
The REIT owns 11 shopping malls and five business park properties located across 10 cities in China with a total gross floor area of around 1.7 million square feet.
Late last year, CRCT had announced an expansion of its investment strategy to include offices and industrial properties in addition to retail malls.
The decision was arrived at to enable the REIT to access a larger pool of investment opportunities that may possess attractive yields and better resilience.
The aim was also to diversify the REIT’s revenue stream away from purely malls and gain exposure to a larger pool of tenants to reduce tenant concentration risk.
This effort paid off when CRCT acquired five business properties and the remaining 49% interest in Rock Square, one of the largest shopping malls in the Haizhu district, Guangzhou, for nearly RMB 5 billion.
When CLCT reported its fiscal 2021 first half (1H2021) results, gross revenue had surged by 74.2% year on year while distribution per unit jumped by 40.1% year on year to S$0.0423.
Get Smart: More flexibility for REITs
The expansion in investment mandate should be viewed as a positive for the above REITs.
It has enabled them to acquire assets that are complementary to their core portfolio and helps to diversify their income stream.
Most importantly, it allows them to remain resilient during the pandemic and provides an avenue for further growth.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
