REITs are a great vehicle for providing investors with a flow of passive income.
They need to pay out at least 90% of their earnings as distributions to enjoy tax benefits, making them perfect for income-seeking investors.
What’s more, REITs own a portfolio of physical properties that hold their value during recessions and are also professionally managed.
Aside from doling out a stream of cash inflows, some REITs have also grown their asset base and distribution per unit (DPU) over time.
Some methods used by the REIT manager include positive rental reversions, asset enhancement initiatives, and acquisitions.
Here are three Singapore REITs that recently conducted acquisitions to grow their property portfolios and DPU.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT, or UHREIT, is a US grocery-anchored shopping centre and self-storage REIT.
It owns a total of 24 properties across eight states in the US with property valued at US$688.5 million as of 31 December 2021.
Earlier this month, UHREIT announced the acquisition of Upland Square Shopping Centre, a grocery-anchored freehold asset located in Montgomery, Pennsylvania.
The purchase price was US$85.7 million and represents the REIT’s second acquisition in this state.
This acquisition will be partially funded by the proceeds from the sale of two self-storage properties that net approximately US$44 million.
The addition of this property will raise UHREIT’s committed occupancy to 96.6%, the highest level since its IPO.
Upland Shopping Centre boasts reputable tenants such as Ahold Delhaize (AMS: AD), Burlington Stores (NYSE: BURL), Petco (NASDAQ: WOOF), and TJ Maxx.
Post-acquisition, the REIT’s top 10 tenants will make up 56.8% of total gross rental income, down from 60.2%.
The enlarged portfolio will also face lower lease expiries in 2023 and 2024 as these leases will be better spaced out.
Pro forma DPU is projected to increase by 2.13% from US$0.061 to US$0.0623 while UHREIT’s portfolio value will grow by 6% to US$730.1 million.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, is an industrial and commercial REIT that owns 101 properties worth S$6.7 billion as of 31 March 2022.
These properties are spread out across five countries – Singapore, Australia, Germany, the UK and the Netherlands.
The REIT manager is active in capital recycling by regularly divesting lower-yielding properties to invest the proceeds into higher-yielding ones.
In January, Cross Street Exchange in Singapore was divested for S$810.8 million, and the money has been channelled into two acquisitions.
The first is the purchase of a prime freehold suburban five-storey office building in Victoria, Australia, for around S$58.4 million.
The property is 100% occupied with a weighted average lease (WALE) expiry of five years.
The second is the acquisition of three freehold logistics and industrial properties also in Victoria, Australia, for S$60.4 million.
These properties are also fully occupied with a WALE of 6.6 years.
Part of the divestment proceeds was also used for the acquisition of a freehold logistics development in Cheshire, the UK.
The consideration for this acquisition is S$171.1 million and the development of the property will be complete by the second half of 2023 and be pre-let to Peugeot Motor Company for 15 years.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns a portfolio of 21 data centres across nine countries worth S$3.5 billion as of 31 March 2022.
Last week, the REIT announced the acquisition of two data centres in Guangdong, China, for around S$297.1 million.
The acquisitions will be completed in the second half of 2022 and third quarter of 2023, and are master leased on a triple-net basis (i.e. all expenses paid for by the tenant) for 15 years.
The two acquisitions are projected to increase fiscal 2021’s DPU by 2.7% from S$0.09851 to S$0.10113.
Operating metrics for Keppel DC REIT will also be enhanced.
The portfolio occupancy rate will improve from 98.7% to 98.9% while WALE will increase from 7.7 years to 8.8 years.
Post-acquisition, Keppel DC REIT’s portfolio will increase to 23 data centres, of which three are in China.
Its gearing will also move up from 36.2% as of 31 March 2022 to 37.2%, leaving sufficient debt room for further acquisitions.
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Disclaimer: Royston Yang owns shares of Frasers Logistics & Commercial Trust and Keppel DC REIT.
