REITs and business trusts have not had an easy time this year.
High interest rates and inflation have dampened demand for these yield instruments.
However, there are several bright spots.
REIT managers have undertaken acquisitions and capital recycling initiatives to help mitigate these headwinds.
Here are four Singapore REITs and business trusts that deserve a second look as December approaches.
CapitaLand Ascendas REIT (SGX: A17U)
CapitaLand Ascendas REIT, or CLAR, is Singapore’s oldest industrial REIT with a portfolio of 229 properties spread across Singapore, the US, Australia, the UK, and Europe.
The REIT’s assets under management (AUM) stood at S$16.8 billion as of 30 September 2024.
CLAR recently announced the acquisition of a parcel of land at 178 & 179 Quality Drive in South Carolina, USA.
This land will be developed into a new logistics property called Summerville Logistics Center at an estimated total investment cost of around S$94.8 million.
This new property will be situated along US Highway 78, which offers strong interstate connectivity and access to other transportation networks along the US East Coast.
The distribution property comprises two single-storey buildings featuring best-in-class building specifications, allowing CLAR to increase the proportion of its modern logistics assets in the US to 21.8% of its total US logistics AUM.
This acquisition is also aligned with the REIT’s strategy to increase its portfolio exposure to the logistics sector, with the purchase increasing the value of its logistics AUM by nearly 28% to around S$434.1 million.
The property offers an attractive stabilised net property income (NPI) yield of 7.2% post-transaction costs.
CLAR will finance the transaction using internal resources or existing debt facilities.
This acquisition is projected to improve its distribution per unit (DPU) by around S$0.00041 or around 0.3%.
Keppel Infrastructure Trust (SGX: A7RU)
Keppel Infrastructure Trust, or KIT, is the largest infrastructure business trust on the Singapore Exchange with around S$8.7 billion of AUM.
KIT plans to acquire a 50% equity interest in Marina Water East Pte Ltd (MEW) which owns Keppel Marina East Desalination Plant (KMEDP).
This plant has an enterprise value of around S$323 million and following the completion, both KIT and Keppel Infrastructure Holdings Pte Ltd, a subsidiary of sponsor Keppel Ltd (SGX: BN4), will each own a 50% stake.
KMEDP is Singapore’s fourth desalination plant with a capacity of 137,000 cubic metres per day and is on a 25-year concession till 29 June 2045.
This long-term concession ensures that KIT enjoys stable cash flows, and its DPU for 2023 should also increase by 0.4% to S$0.0387.
Net gearing will increase slightly from the current 39.8% to 40.2%.
The existing offshore and marine operator will continue to be responsible for the day-to-day operations and maintenance of the plant.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 23 data centres across 10 countries.
The REIT’s AUM stood at S$3.9 billion as of 30 September 2024.
Keppel DC REIT announced the proposed acquisition of two data centres – KDC SGP 7 and KDC SGP 8, for a total acquisition cost of S$1.38 billion.
These two properties will be purchased from its sponsor, Keppel Ltd, and are both fully occupied.
Both data centres are AI-ready, hyperscale properties that are equipped to handle AI inference workloads.
This acquisition will increase Keppel DC REIT’s Singapore AUM by 67% from S$2.1 billion to S$3.4 billion.
Post-acquisition, the REIT’s total AUM will rise to S$5.2 billion comprising 25 data centres.
The transaction will result in an immediate DPU accretion of 8.1%, lifting the REIT’s first half of 2024 (1H 2024) DPU from S$0.04549 to S$0.0492.
The acquisition will be funded by a mixture of debt and equity, with the equity portion coming from net proceeds from an equity fundraising exercise involving both a private placement and a preferential offer.
Keppel DC REIT’s aggregate leverage is projected to decline from 39.7% to 33.3% post-acquisition.
The contracted rentals for both data centres are estimated to be 15% to 20% below comparable market colocation rents, implying that there could be potential for positive rental reversions when the leases are renewed.
Paragon REIT (SGX: SK6U)
Paragon REIT owns a portfolio of four properties, with two in Singapore and two in Australia.
The Singapore properties have an aggregate net lettable area (NLA) of around 914,000 square feet while the Australian ones have a gross lettable area of around 1.7 million square feet.
The REIT announced the divestment of its 85% stake in Figtree Grove for a cash consideration of A$192 million.
This consideration was a 5% premium over the A$183 million independent valuation of the property as of 31 October 2024.
The net proceeds will be used to pay down debt, finance capital expenditures and asset enhancement works or returned to unitholders through distributions.
Completion will take place by the first quarter of fiscal 2025 and Paragon REIT’s portfolio will then comprise just three properties.
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Disclosure: Royston Yang owns shares of Keppel DC REIT.
