Income investors are seeing better days ahead as the US central bank has signalled its intention to gradually reduce interest rates.
In particular, REIT investors should heave a sigh of relief as the pressure on finance costs should ease.
As interest rates fall, REITs should find it easier to refinance their debts at more attractive rates.
Falling interest rates also make acquisitions easier to conduct as the threshold for an acquisition to be yield accretive will decline in tandem.
Here are three Singapore REITs that recently announced acquisitions that are set to boost their distributions.
CapitaLand Integrated Commercial Trust (SGX: C38U)
CapitaLand Integrated Commercial Trust, or CICT, is a retail and commercial REIT with a portfolio of 21 properties in Singapore, two in Germany, and three in Australia.
The REIT’s assets under management (AUM) stood at S$24.5 billion as of 31 December 2023.
CICT announced the acquisition of a 50% interest in ION Orchard Mall in Singapore at an agreed property value of S$1.8 billion.
The property had a gross yield (based on annualised revenue for the first half of 2024 [1H 2024]) of around 7.1%.
ION Orchard Mall has a committed occupancy of around 96% with net lettable area (NLA) of approximately 623,600 square feet.
The mall also enjoys excellent connectivity and is integrated with two MRT lines (North-South Line and Thomson-East Coast Line).
Management believes that ION Orchard will benefit from the tailwinds of tourism recovery and a healthy economy.
This acquisition will increase CICT’s AUM from S$24.5 billion to S$26.4 billion with Orchard Road properties making up a quarter of Singapore’s retail NLA, up from 14% pre-acquisition.
The pro-forma distribution per unit (DPU) increase is around 0.9%, which will lift 1H 2024’s DPU from S$0.0543 to S$0.0548.
There could also be potential upside from tax transparency as the mall is currently subject to corporate income tax.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is an industrial REIT with a portfolio of 56 properties in the US, 83 in Singapore, and one in Japan.
MIT’s AUM stood at S$9 billion as of 30 June 2024.
In late September, the industrial REIT acquired a freehold property in Tokyo, Japan for JPY 14.5 billion (around S$129.8 million), a 3.3% discount to its valuation.
MIT is acquiring an effective 98.47% interest in this building that has redevelopment potential into a new data centre.
The property is a mixed-use facility comprising a data centre, back office, training facilities, and an adjacent accommodation wing.
This property enjoys full occupancy and is leased to an established Japanese conglomerate.
It will provide MIT with a stable cash flow over the next five years and will increase the proportion of freehold properties within its portfolio (by land area) from 65.8% to 65.9%.
MIT will also further diversify its country exposure with Japan’s weight increasing from 5.1% to 6.4% while its Asia Pacific data centre exposure will increase from 8.3% to 9.6%.
Management communicated that this acquisition will be yield accretive and will be fully funded by JPY-denominated borrowings that will act as a natural hedge.
Given the property’s location, it presents a future redevelopment opportunity to a new data centre and is in line with MIT’s efforts to rejuvenate its portfolio and shifting it towards higher-value assets.
CapitaLand Ascott Trust (SGX: HMN)
CapitaLand Ascott Trust, or CLAS, is a hospitality trust with a portfolio of 102 properties across 45 cities in 16 countries.
CLAS’s portfolio stood at S$8.5 billion as of 30 June 2024.
The hospitality trust announced the acquisition of lyf Funan Singapore at an agreed property value of S$263 million.
The property was built in 2019 and has 329 rooms with a gross floor area of 11,347 square metres.
Lyf Funan Singapore offers an EBITDA (earnings before interest, taxes, depreciation and amortisation) yield of 4.7% based on the 2023 financial results.
This purchase will be mostly funded by the divestment of Citadines Mount Sophia Singapore back in March this year.
CLAS’s gearing level is expected to remain under 40%.
2023’s distribution per stapled security (DPSS) will rise by 1.5% from S$0.0657 to S$0.0667.
The recovery in the hotel industry is projected to continue in 2024 with improved flight connectivity and capacity.
The good news is that the revenue per available room (RevPAR) of Singapore hotels increased by 3.4% year on year for the first eight months of 2024.
Lyf Funan Singapore’s hotel licence is also versatile and can capture demand for both long and short stays.
Room types range from studios to larger apartments that can accommodate up to nine guests, thus ensuring that it can cater to different segments of travel demand.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
