Centurion Accommodation REIT(SGX: 8C8U) or CAREIT has made a strong start for its IPO debut.
Its unit price climbed over 6% in the first week of trading on the SGX, from its IPO price of S$0.88 to above S$0.93 at time of writing.
Not bad at all for a REIT that owns dormitories and student housing.
These assets may not sound glamorous, but they are essential.
CAREIT, sponsored by Centurion Corporation (SGX: OU8), focuses on Purpose-Built Workers Accommodation (PBWA) and Purpose-Built Student Accommodation (PBSA).
These provide beds for foreign workers and international students, both of which are ongoing needs.
Investors are clearly attracted to the income on offer.
CAREIT is projecting distribution yields of 7.47% for 2026 and 8.11% for 2027.
Before you rush to chase those yields, it is worth looking more closely at what drives them.
Here are three things to keep in mind.
1. The Australian property still needs support
A key highlight of the IPO is the acquisition of Epiisod Macquarie Park, a student accommodation property in Sydney.
On the surface, the acquisition looks promising.
It is located near Macquarie University, a major international student hub.
However, the property is not expected to stand on its own immediately.
The sponsor has put in place a master lease that guarantees income until December 2027.
This agreement is meant to cover the “ramp-up” period, when occupancy is expected to climb from 75% in 2026 to 95% in 2027.
That arrangement provides stability in the near term, but it also raises a question.
What happens when the lease ends in 2028?
At that point, the property will need to sustain those occupancy levels without external support.
Because this asset makes up a meaningful portion of CAREIT’s forecast distributions, any shortfall could affect overall returns.
2. Management fees could take a larger slice than you expect
The IPO prospectus includes an important detail.
CAREIT’s manager is entitled to a base fee of 10% of distributable income, as well as a performance fee equal to 25% of any year-on-year increase in DPU.
That is a fairly high percentage compared with many peers.
The intention is to align the manager’s interests with those of unitholders.
In practice, however, the picture is more complicated.
The manager is wholly owned by the sponsor, who also holds nearly half of CAREIT’s units.
There is another detail that investors should note.
The projected yields assume no performance fees will be paid through 2027.
If actual results come in higher than expected, the 25% performance fee applies immediately.
At present, management fees are being paid in units rather than cash. This avoids reducing near-term distributions but does result in more units being issued, which leads to dilution over time.
3. The 100% payout policy is temporary
CAREIT has committed to distributing 100% of its distributable income until 2027.
This is generous, and it is part of the reason projected yields look attractive.
From 2028 onwards, however, the policy shifts to “at least 90%,” which is the industry norm.
That 10% retention may not sound significant, but it has a visible impact.
On an 8% yield, a move from 100% to 90% reduces the distribution yield to 7.2%.
The timing coincides with other important changes.
By 2028, the master lease on the Australian property will have expired, and performance fees could begin to apply.
Retaining a portion of income will give the REIT flexibility, but it also means those higher yields have a limited shelf life.
Get Smart: A strong start, but understand the details
CAREIT’s debut shows the market’s appetite for higher income.
The underlying business case is sound.
Foreign workers need housing near worksites, and international students need accommodation near campuses.
These are not optional expenses.
The sponsor also has a respectable track record, with strong tenant retention and steady rental growth.
That said, investors should not expect the initial yields to continue indefinitely.
By 2028, once the support measures roll off, yields are likely to settle closer to between 6.5% and 7%.
If you are comfortable holding a specialised accommodation REIT at that level, CAREIT may still be a worthwhile consideration.
The long-term demand is there.
But remember that the high yields attracting attention today come with conditions attached.
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Disclosure: Joanna Sng does not own shares in any companies mentioned in this article.
