If you’re a REIT investor, you’re probably enjoying the consistent flow of dividends from this asset class.
REITs are almost akin to bonds as you can count on the regularity of their distributions.
Here’s where the difference ends, though.
Unlike bonds, well-managed REITs can grow their distributions over time as they boost their asset base and earn higher rental income.
REITs can do this through a combination of methods such as acquisitions, asset enhancement initiatives (AEIs) and organic rental growth.
If these methods are pulled off successfully, unitholders can enjoy a steady increase in the distribution per unit (DPU) they receive.
Over time, buying into such REITs is an effective way to build up a growing stream of passive income that will serve you well for your retirement.
Here are three REITs that are tapping on a mix of catalysts to grow their DPU.
ARA US Hospitality Trust (SGX: XZL)
ARA US Hospitality Trust, or ARAHT, has a portfolio of 36 select-service hotels with a total of 4,707 rooms across 19 states in the US as of 4 January 2023.
The hospitality trust reported a strong recovery for the first nine months of 2022 (9M2022), with gross revenue jumping 38% year on year to US$130 million and net property income (NPI) surging by 80% year on year to US$33 million.
Just last week, ARAHT announced the proposed acquisition of Home2 Suites by Hilton Colorado Springs South Hotel for a consideration of US$29 million.
Home2 Suites is a select-service hotel with 119 rooms and is located within a popular tourist attraction.
The manager of the property is Chartwell Hospitality, LLC, founded in 2003, which manages a diverse portfolio of 27 Marriott (NASDAQ: MAR) and Hilton (NYSE: HLT) branded hotels across nine US states.
Home2 Suites generated a revenue per available room (RevPAR) of around US$129 for its trailing 12-month performance through to October 2022, higher than the 9M2022 RevPAR of US$85 for ARAHT.
This property has an NPI yield of approximately 9% and is projected to strongly boost ARAHT’s DPU.
Assuming the acquisition was completed on 1 January 2021, along with the disposal of five Hyatt Place properties in the third quarter of 2022 (3Q2022), the distribution per stapled security (DPSS) for the trust would have more than doubled from US$0.00355 to US$0.00784.
This acquisition not only increases DPSS substantially but also allows the trust to expand its brand portfolio to include Hilton in addition to Hyatt (NYSE: H) and Marriott.
CapitaLand India Trust (SGX: CY6U)
CapitaLand India Trust, or CLINT, owns a portfolio of eight IT business parks, one logistics park, one industrial facility and one data centre development, all located in India.
As of 30 June 2022, CLINT’s assets under management (AUM) stood at S$2.5 billion.
Late last month, the REIT proposed the acquisition of International Tech Park Pune.
The property is an IT Special Economic Zone (SEZ) with a total floor area of around 2.3 million square feet spread across four buildings.
The buildings are 100%-leased to prominent tenants such as Infosys (NSE: INFY) and Tata Consultancy Services (NSE: TCS).
CLINT will purchase the property, which is majority-owned by its sponsor CapitaLand Investment Limited (SGX: 9CI), for approximately S$221.9 million.
This transaction is DPU-accretive and needs to be approved by unitholders in an extraordinary general meeting to be held soon.
OUE Commercial REIT (SGX: TS0U)
OUE Commercial REIT, or OUECR, has a property portfolio comprising 2.2 million square feet of prime office and retail space along with 1,643 upscale hotel rooms.
Its AUM stood at S$5.8 billion as of 30 June 2022.
Earlier this month, OUECR announced the reopening of its 446-room Orchard Wing at the Hilton Singapore Orchard.
The refurbished rooms and suites were reopened after an extensive 10-month rejuvenation that was part of an AEI announced back in March 2020.
With this reopening, Hilton Singapore Orchard is now operating at its full capacity of 1,080 rooms and is in time to capture rising demand from travellers in line with border reopenings.
Demand for refurbished rooms has been strong with a good mix of corporate and leisure guests after the hotel was repositioned as one of the top luxury hotels in Singapore.
The RevPAR for the hotel for 3Q2022 increased by 10.2% quarter on quarter to S$332, hitting a record high for the property post-re-branding.
CEO Mr Han Khim Siew is confident that Hilton Singapore Orchard will surpass the minimum rent of S$45 million per annum with the recent reopening.
Should this happen, OUECR will see higher NPI and distributable income, which should then result in a higher DPU moving forward.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
