It’s music to a REIT investor’s ears when its distributions are raised.
After all, the primary aim of investing in REITs is to generate a stream of passive income that can help you enjoy a comfortable retirement.
REITs are well-suited for income-focused investors due to their need to pay out at least 90% of their earnings as distributions to enjoy tax exemptions.
There are several ways in which a REIT can grow its distribution per unit (DPU).
One is through the acquisition of properties that help to grow the REIT’s asset base, thus increasing its rental and distributable income.
The other two methods are organic and involve positive rent reversions and asset enhancement initiatives.
Of the above, acquisitions are, by far, the most popular method used by REITs to quickly grow their DPU.
Here are four REITs that recently conducted acquisitions that promise to boost their distributions.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, has announced a S$1.4 billion acquisition of 17 modern, Grade-A logistics assets in China, Vietnam, and Japan.
The logistics REIT currently has a portfolio of 163 logistics properties worth S$10.8 billion as of 30 September 2021.
The properties in China and Vietnam that the REIT is targeting has a combined net lettable area of around 1.05 million square metres with committed occupancy of 91%.
MLT will be acquiring 16 properties in these two countries at a net property income (NPI) yield of 5.1%.
Meanwhile, the Japan property has a stabilised NPI yield of around 4% with committed occupancy of 82.5%.
The acquisitions will be funded by a mix of debt and equity.
The REIT’s pro-forma DPU for the fiscal year 2021 ended 31 March 2021 is expected to rise by 2.2% to S$0.08511, while its net asset value (NAV) per unit will rise by 4.4% to S$1.38.
Keppel REIT (SGX: K71)
Keppel REIT owns a portfolio of Grade A commercial assets worth S$9 billion in Singapore, cities in Australia, and South Korea.
The commercial REIT has agreed to acquire Blue & William, a freehold, Grade A office building under development in North Sydney, Australia, for A$327.7 million.
The developer of the building, Lendlease Group (ASX: LLC), will pay the REIT a coupon of 4.5% per annum on cumulative progress payments made.
It will also provide a three-year guarantee on any unlet space in the building after completion.
Keppel REIT expects to achieve an NPI yield of 4.5% upon completion.
The estimated completion of the building is around mid-2023.
DPU for the fiscal year 2020 (FY2020) is expected to rise by 3% to S$0.059 post-acquisition, while the REIT’s aggregate leverage will rise from 37.6% to 39.9%.
Manulife US REIT (SGX: BTOU)
Manulife US REIT, or MUST, owns a portfolio of nine freehold trophy or Class A commercial buildings in the US worth around US$2 billion.
The REIT has announced an acquisition of three freehold properties in Portland, Oregon (1) and Phoenix, Arizona (2) for US$201.6 million.
The properties have occupancies ranging from 85% to 100% and weighted average lease expiries (WALE) by net lettable area ranging from 4.6 years to 7.9 years.
These acquisitions will boost the REIT’s exposure to technology and healthcare clients from the current 9.5% of the portfolio to 12.8% by gross rental income (GRI).
Tenants in these sectors tend to be more resilient during downturns, thus protecting the REIT’s rental income stream.
The enlarged portfolio will also benefit from a higher overall occupancy rate of 91.3% (up from 90.9%) and WALE will inch up to 5.2 years from 5.1 years.
DPU for MUST’s fiscal 2021 first half (1H2021) is projected to rise by 4.4% to US$0.0282.
CapitaLand Integrated Commercial Trust (SGX: C38U)
CapitaLand Integrated Commercial Trust, or CICT, owns a portfolio of 22 commercial and retail properties in Singapore and two in Frankfurt, Germany, valued at a total of S$22.3 billion as of 31 December 2020.
CICT announced its first foray into Australia with the acquisition of two Grade A office buildings in Sydney for around A$330.7 million.
The REIT manager intends to fund the acquisitions with debt and divestment proceeds, and also through a private placement of 127.5 million new units priced at S$1.96 per unit.
The expected completion will be in the first quarter of next year.
The acquisitions are expected to bump up CICT’s 1H2021 DPU by 3.1% to S$0.1054. as the NPI yields for both assets are at an attractive 5.2%.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
