Income-seeking investors love receiving a stream of steady, dependable dividends.
In this vein, REITs are one of the most effective vehicles for dividend investors as they are mandated by law to payout 90% of their earnings.
Not only are REITs suitable as income instruments, but by choosing the right REITs, investors can enjoy some measure of growth as well.
There are several effective ways for REITs to grow their distribution per unit (DPU) over time.
Other than organic methods such as rent reversion and asset enhancements, a third popular method involves acquisitions.
Acquisitions not only help to grow a REIT’s asset base but usually also boost its DPU.
Here are three REITs that recently announced yield-accretive acquisitions.
Keppel Pacific Oak REIT (SGX: CMOU)
Keppel Pacific Oak REIT, or KORE, invests in a diversified portfolio of commercial properties in key growth markets in the US.
The REIT owns a portfolio of 13 office properties spread out across eight key cities in the US.
For its fiscal 2021 first half (1H2021), the REIT reported a slight dip in gross revenue, down 3% year on year to US$68.4 million.
DPU, however, inched up 1.9% year on year to US$0.0316.
In late July, KORE announced the acquisition of two office buildings, one in Nashville, Tennessee and the other in Denver, Colorado, for US$105 million.
The acquisition will be funded via a combination of equity and debt.
Both properties are 100% occupied, with the Nashville property providing a pro-forma net property income (NPI) yield of 7.8% and the Denver property yielding 6.7%.
These two acquisitions will increase KORE’s portfolio to 15 freehold properties and will also increase the portfolio’s overall occupancy rate from 90.5% to 91.2%.
Pro-forma DPU is estimated to rise by 0.8% from US$0.0623 to US$0.0628.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, is a pan-European REIT that invests in real estate across Europe that are used for office, light industrial, logistics or retail purposes.
The REIT’s portfolio consists of 109 properties valued at around EUR 2.3 billion as of 4 August 2021.
The REIT announced its first freehold property acquisition in the UK recently for GBP 10 million.
The property has a floor area of around 9,764 square metres and is fully occupied.
The property was last refurbished this year and has a weighted average lease expiry (WALE) of 10 years.
The UK is one of the most liquid real estate markets in Europe and has a growth forecast of 7.3% for 2021, aided by a swift COVID-19 vaccine roll-out that has seen around 71% of the population receiving both doses.
The net operating income yield for the property is 5.6% and is aligned with the REIT’s purpose of delivering DPU growth to unitholders.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns a portfolio of 19 data centres across eight countries as of 30 June 2021.
Assets under management stood at S$3.1 billion.
The REIT announced a respectable set of earnings for 1H2021, with gross revenue rising by 9% year on year to S$135.1 million.
NPI rose by 8.4% year on year to S$123.8 million while DPU improved by 12.5% year on year to S$0.04924.
Keppel DC REIT also announced its first acquisition this year, that of a fully-fitted data centre facility in Jiangmen, Guangdong province, China for around S$132 million.
This is also the REIT’s maiden data centre acquisition in China, and the property will be leased back to Bluesea (the seller) on a triple net basis (i.e. all expenses to be borne by the lessee) for 15 years.
The property was purchased at a 7.8% discount to its independent valuation and is expected to be accretive to the REIT’s DPU.
This acquisition is also beneficial for the overall portfolio’s operating metrics, with occupancy rising from 98% to 98.2% and WALE jumping from 6.5 years to 7.3 years.
Leverage will only rise slightly to 37.5% post-completion, leaving plenty of debt headroom for the REIT to borrow to make more such yield-accretive acquisitions.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT.
