The REIT sector has been burdened by high interest rates and surging inflation over the past two years.
Despite these headwinds, several REITs have undertaken capital recycling initiatives to rejuvenate their portfolios.
Such initiatives involve the sale of older, underperforming assets and the acquisition of newer, higher-yielding ones.
By doing so, REITs can mitigate these headwinds and ensure that their portfolio of properties remains in high demand.
Here are three Singapore REITs that announced divestments in recent weeks that income investors may wish to take note of.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is an industrial REIT with a portfolio of 187 properties across eight countries.
Its assets under management (AUM) stood at S$13.2 billion as of 31 March 2024.
The manager of MLT has been active in capital recycling which includes choice acquisitions and divestments.
Back in May, the REIT sold off 30 Tuas South Avenue 8 to a third-party buyer for S$10.5 million.
The property is a warehouse with a building age of over 25 years.
The sale price was 10.5% above the property’s latest valuation of S$9.5 million as of 31 March 2024.
Earlier in June, the manager announced the divestment of Mapletree Logistics Warehouse (Xian) in China for a sale consideration of RMB 70.5 million.
This building’s age is almost 20 years and the sale was conducted at 0.7% above the property’s valuation of RMB 70 million.
The proceeds will be used to pursue investment opportunities in high-specification, modern logistics facilities with higher growth prospects.
At the same time, MLT also sold off 119 Neythal Road for S$13.8 million.
The property, which has a remaining land lease of just 15 years, was divested at 34% above its latest valuation ofS$10.3 million.
In the three instances above, the manager sold off properties which were fairly old or had limited land lease remaining.
All three sales were also conducted above valuation, attesting to the manager’s skill in adding value for the REIT.
As a recap, MLT announced a total of nine divestments for fiscal 2024 (FY2024) ending 31 March 2024, all of which were done at a premium to their valuations.
These divestments help to rejuvenate MLT’s portfolio and ensure that the REIT continually refreshes the portfolio with newer, higher-yielding properties.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, invests in a portfolio of assets used for retail and/or commercial purposes.
Its portfolio comprises 18 commercial properties across four countries valued at S$16.5 billion as of 31 March 2024.
MPACT announced the divestment of Mapletree Anson back in late May.
The property has a net lettable area of close to 330,000 square feet and has 17 tenants along with 23 leases.
The divestment consideration is S$775 million and is slightly above the independent valuation of S$765 million.
It is also 14% above the purchase price of S$680 million.
MPACT’s net property income (NPI) yield for Mapletree Anson based on the divestment consideration was 3.8%.
Because of this divestment, the REIT’s aggregate leverage will improve from 40.5% to 37.6%, increasing its debt headroom from S$3.2 billion to S$3.9 billion.
Its adjusted interest coverage ratio will rise from 2.9 times to 3.3 times.
Best of all, MPACT’s distribution per unit (DPU) for FY2024 will rise by 1.5% from S$0.0891 to S$0.0904.
Paragon REIT (SGX: SK6U)
Paragon REIT has a portfolio of five properties in Singapore and Australia.
Just last week, the retail REIT announced the divestment of The Rail Mall for S$78.5 million.
The property is a strip mall with 43 shop units and is adjacent to the Rail Corridor nature trail.
The sale is part of management’s proactive portfolio management strategy and is in line with its objective to unlock value from the REIT’s portfolio.
The divestment consideration was also 26.6% above The Rail Mall’s valuation of S$62 million as of 31 December 2023.
The proceeds will be used to pare down debt, finance future acquisitions and/or asset enhancement initiatives, or increase DPU.
The divestment is scheduled to be completed by the second half of 2024 and will leave Paragon REIT with a portfolio of four assets.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
