It’s always a great feeling when you receive more dividends.
And REITs are an asset class that has delivered a steady stream of distributions to its unitholders since the very first REIT, CapitaMall Trust, was listed in Singapore two decades ago.
Not only can REITs provide you with a flow of passive income to sustain your retirement, but these distributions may also rise over time.
There are three main methods that REITs use to grow their distribution per unit (DPU).
The first, and by far most popular, relates to acquisitions that can boost both their asset base and DPU.
The other two are organic and involve positive rental reversions and the use of asset enhancement initiatives (AEI) to attract higher rental income.
We tease out three Singapore REITs that recently conducted DPU-accretive acquisitions and also peer into their latest set of financials.
First REIT (SGX: AW9U)
First REIT is a healthcare REIT that owns a portfolio of hospitals and nursing homes.
Its portfolio comprises 12 hospitals, two integrated hospitals and malls, one integrated hospital and hotel and a hotel cum country club in Indonesia.
Elsewhere, the REIT also owns three hospitals in Singapore along with 12 nursing homes in Japan.
First REIT announced the acquisition of two nursing homes in Japan for around S$26.3 million.
This purchase is in line with its 2.0 Growth Strategy to boost its assets under management (AUM) in developed markets to more than half of its portfolio.
Both properties have a combined net property income (NPI) yield of 5.2% and are projected to be DPU-accretive.
First REIT also released its business update for the first nine months of 2022 (9M2022).
Total revenue jumped 39.2% year on year to S$80.9 million while NPI climbed 40.1% year on year to S$79.1 million.
DPU inched up 1.5% year on year to S$0.0198.
With a gearing ratio of 35.6% as of 30 September 2022, the healthcare REIT has sufficient room to tap into debt financing for more DPU-accretive acquisitions.
First REIT intends to recycle capital from non-core, non-healthcare assets and has identified two assets in Indonesia slated for sale.
It is also diversifying its funding sources and recently secured a JPY 1.66 billion social loan from a Japanese bank.
Keppel REIT (SGX: K71U)
Keppel REIT owns a portfolio of 11 commercial properties located in Singapore, Australia and South Korea with an AUM of S$9 billion as of 30 September 2022.
Late last month, the REIT announced the acquisition of a freehold boutique office building in Ginza, Japan.
This purchase marks the REIT’s first entry into Japan, which is Asia’s largest developed market.
Keppel REIT will fork out around S$84.4 million for a 98.47% effective interest in the property.
The property, Ginza 2-chome, consists of eight storeys of office space with a retail unit on the ground floor and is anchored by Netyear Group Corporation, a subsidiary of NTT Data Corporation (TYO: 9613).
The property is expected to have an NPI yield of 3.1% when fully leased and will bump up DPU by 0.5%.
Meanwhile, Keppel REIT’s 9M2022 business update saw the office REIT report an encouraging set of financial numbers.
NPI inched up 2.7% year on year to S$119.9 million while distributable income rose 3.4% year on year to S$165.4 million.
Digital Core REIT (SGX: DCRU)
Digital Core REIT is a data centre REIT that owns 10 fully-occupied data centres with an AUM of US41.45 billion.
The REIT is proposing the acquisition of a 25% stake in a data centre in Frankfurt, Germany for a total acquisition cost of US$146 million using purely debt to finance the transaction.
If successful, the DPU for fiscal 2022’s first half (1H2022) will rise by 2% from US$0.0206 to US$0.021.
Aggregate leverage will rise from 25.7% to 33%.
The REIT is also proposing an equity-funded scenario where the REIT will acquire an 89.9% interest in the Frankfurt data centre along with a 90% interest in a data centre in Dallas, USA.
The total acquisition cost under this scenario will be US$700 million.
The second option will raise DPU by 3.1% to US$0.0212.
Digital Core REIT has yet to decide if it will proceed with the equity fund-raising option but will hold an extraordinary general meeting soon to approve the transactions.
Meanwhile, the data centre REIT reported a healthy set of financials for 9M2022.
NPI came in at US$53 million, 5.7% above forecast.
However, distributable income was 3.4% lower than forecast due to higher-than-expected expenses.
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Disclaimer: Royston Yang owns shares of Digital Core REIT.
