REITs are a great asset class for dividends and are favoured by income investors.
The requirement for REITs to pay out at least 90% of their net profit as distributions ensures that they dish out a dependable stream of passive income.
There is more good news, though.
REITs can not only pay out a consistent distribution but can undertake acquisitions to grow both their asset base and distribution per unit (DPU) further.
Here are three Singapore REITs that recently conducted acquisitions to raise their DPU.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is an industrial REIT with a portfolio of 187 properties across eight countries.
The REIT’s total assets under management (AUM) stood at S$13.3 billion as of 31 December 2023.
MLT’s latest acquisition shows the benefit of having a strong sponsor with a pipeline of assets that can be injected into the REIT.
The logistics REIT announced that it will be acquiring three modern logistics properties in Malaysia (1) and Vietnam (2) from its sponsor Mapletree Investments Pte Ltd (MIPL).
The total acquisition cost is estimated at S$234 million and all three properties are being acquired at a slight discount to their independent valuations.
The trio of properties have attractive characteristics – the occupancy rate stood at 96% while the initial net property income (NPI) yield is approximately 6.2%.
This acquisition will deepen MLT’s footprint in two fast-growing logistics markets.
Colliers Singapore estimates that consumption expenditure will grow by 8.2% and 5.1% per annum from 2017 to 2026 for Vietnam and Malaysia, respectively.
E-commerce revenue is expected to grow by 6.7% and 22.1% per annum from 2022 to 2026 for Malaysia and Vietnam, respectively, contributing to continued robust demand for logistics properties.
These acquisitions will be financed with a mix of debt along with proceeds from recent divestments.
The REIT manager expects the acquisitions to be accretive to MLT’s DPU.
The REIT’s aggregate leverage is projected to rise from the current 38.8% to 39.6% after the acquisitions are completed.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, owns a portfolio of 108 industrial and commercial properties across five countries worth around S$6.7 billion as of 31 December 2023.
Like MLT, FLCT has also announced an acquisition of properties from its sponsor Frasers Property Limited (SGX: TQ5), or FPL.
The industrial and commercial REIT purchased an 89.9% stake in a portfolio of four properties in Germany at a purchase price of €129.5 million.
The amount paid represents a 5.3% and 1.1% discount of two independent valuations conducted for the properties.
All four assets enjoy full occupancy and have a long weighted average lease expiry (WALE) of 6.1 years based on gross rental income (GRI).
The proposed acquisition will be funded fully using debt financing, with FLCT’s aggregate leverage expected to rise from the current 30.7% to 32.5% once completed.
The German logistics market enjoys continued e-commerce growth and is one of Europe’s largest freight and logistics markets.
The four properties will continue to be managed by FPL post-acquisition alongside FLCT’s existing European assets, showcasing continued strong support from FLCT’s sponsor.
Post-acquisition, the proportion of logistics & industrial assets in FLCT’s portfolio will increase from 70.3% to 71.1%, with the transaction expected to be both DPU and net asset value (NAV) accretive.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is a data centre REIT with a portfolio of 12 data centres in Germany, the US, Japan, and Canada with an AUM of around US$1.4 billion.
Earlier this month, DCR announced its intention to acquire an additional 24.9% interest in a Frankfurt facility, also from its sponsor Digital Realty Trust (NYSE: DLR).
The Frankfurt data centre has an occupancy of 92% and sits on freehold land with a remaining WALE of around 2.7 years.
The data centre also has a utilities pass-through mechanism to insulate the property against rising energy costs.
Back in December 2022, DCR had acquired a 25% stake in this facility.
This proposed acquisition will raise its stake to 49.9% and the purchase consideration amounts to €131.3 million (including acquisition and professional fees).
DCR’s manager believes that this acquisition can help to increase its stake in a state-of-the-art facility and help it enhance portfolio diversification while improving overall credit quality.
The transaction is expected to lift DCR’s DPU by 3.2% and offer the opportunity for future revenue growth.
With the facility being just 92% leased, there is room to lease out the remaining 8%.
Limited new supply and robust demand for data centres should pave the way for positive rental reversions.
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Disclosure: Royston Yang owns shares of Frasers Logistics & Commercial Trust and Digital Core REIT.
