It has been a turbulent year for the REIT sector as a combination of high inflation and surging interest rates has dampened sentiment for the asset class.
However, REITs continue to be suitable for income-seeking investors as they are mandated to pay out at least 90% of their earnings as distributions.
REIT investors have relied on this asset class for steady dividends throughout the years, and though the sector is facing headwinds, this aspect is unlikely to change.
The good news is that REIT managers are not sitting ducks and can employ a variety of methods to ensure that their distribution per unit (DPU) is protected.
These include acquisitions to boost DPU as well as positive rental reversions, redevelopments, and asset enhancement initiatives (AEI).
With these measures at their disposal, REITs can not only mitigate a drop in DPU but could also report a higher one next year.
Here are four REITs that could increase their DPU in 2023.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is a data centre REIT with a portfolio of 10 fully-occupied data centres worth US$1.4 billion as of 30 September 2022.
These properties are located in Canada and the US and have a weighted average lease expiry of five years.
The newly-listed REIT paid out its maiden distribution of US$0.0206 for its fiscal 2022’s first half (1H2022).
DCR is also anchored by a strong sponsor in the US-listed Digital Realty Trust (NYSE: DLR) which owns more than 300 data centres globally along with 4,000+ customers.
The REIT had just concluded the acquisition of a 25% interest in a Frankfurt data centre for US$146 million, with 1H2022 DPU rising by a projected 2% to US$0.021.
DCR’s aggregate leverage is expected to rise to 33% after this purchase, allowing the REIT to continue tapping on debt for future acquisitions.
DCR has a global right-of-first-refusal on around 250 data centres of its sponsor with a pipeline that could eventually increase its portfolio to around US$15 billion.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, is a retail cum commercial REIT with a portfolio of 18 properties in key markets such as Hong Kong, Singapore, China, Japan, and South Korea.
The REIT’s assets under management (AUM) stood at S$16.9 billion as of 30 September 2022 with a committed occupancy rate of 96.9%.
MPACT’s DPU rose 12.5% year on year to S$0.0494 for its fiscal 2023’s first half (1H2023) as gross revenue and net property income both surged by 44.9% year on year.
Investors can look forward to higher contributions from MPACT’s key Hong Kong retail asset, Festival Walk, as China relaxes its strict COVID-zero policy.
Festival Walk contributed around 11.7% of 1H2023’s NPI and a recovery in tenant sales and footfall could bring in better rental income for the REIT.
MPACT also has its “4R” asset and capital management strategy (recharge, resilience, reconstitute, refocus) that should see growth in South Korea and capital recycling in Japan.
CapitaLand Ascendas REIT (SGX: A17U)
CapitaLand Ascendas REIT, or CLAR, is an industrial REIT with a portfolio of 226 properties worth S$16.5 billion as of 30 September 2022.
The REIT had announced a 2.8% year on year increase in its DPU to S$0.07873 for 1H2022.
As of 3Q2022, CLAR reported a high occupancy rate of 94.5% with a positive rental reversion of 5.4%.
The industrial REIT is active with acquisitions and announced S$296.7 million worth of purchases during the quarter.
With an aggregate leverage of 37.3% and a low cost of debt of 2.2%, CLAR is well-positioned to make more yield-accretive acquisitions.
The REIT also has a slew of ongoing projects such as redevelopments and AEIs totalling S$622.4 million that should boost rental income over time.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, owns a portfolio of 105 industrial and commercial properties across five countries with an AUM of approximately S$6.7 billion as of 30 September 2022 (FY2022).
The REIT had reported a slight 0.8% year on year dip in its DPU to S$0.0762 for FY2022 due to the divestment of Cross Street Exchange and weaker exchange rates.
However, there is good reason to believe that FLCT’s DPU can increase in FY2023.
The REIT’s gearing stood at just 27.4% as of 30 September 2022, providing it with a debt headroom of S$3.2 billion for future acquisitions.
Furthermore, FLCT has close to 82% of its borrowings at fixed rates, thereby mitigating a sharp increase in finance costs.
Management has also demonstrated its capital recycling savvy by divesting Cross Street Exchange at a 28.3% premium to its book value.
A leasehold property in Melbourne was also divested at nearly double its original book value during FY2022.
For its fourth quarter of FY2022, FLCT also executed 23 leasing transactions that saw a positive rental reversion of 9.8%.
These factors should stand the REIT in good stead to improve its DPU for FY2023.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclaimer: Royston Yang owns shares of Digital Core REIT and Frasers Logistics & Commercial Trust.
