REITs are a great vehicle for income investors as they are mandated to pay out 90% of their earnings as distributions.
Because of this, dividend investors rely on them for steady and consistent dividends.
REITs are not only able to dole out dependable distributions but also can grow these distributions over time.
There are several methods that these bundled real estate securities use to increase their distribution per unit (DPU).
The first and most common method is through acquisitions of choice properties that will boost the REIT’s gross income and lead to a higher DPU.
Other methods include organic ones such as asset enhancement initiatives (AEIs), redevelopment opportunities, positive rental reversions, and built-in rental escalation clauses.
We highlight four Singapore REITs that recently announced acquisitions that promise to improve their DPU.
Lendlease Global Commercial REIT (SGX: JYEU)
Lendlease Global Commercial REIT, or LREIT, is a retail cum office REIT that owns leasehold properties Jem and 313 Somerset in Singapore, and a freehold interest in Sky Garden (three Grade-A office buildings) in Milan, Italy.
These five properties have an asset under management (AUM) of around S$3.6 billion as of 30 June 2022.
Earlier this month, LREIT acquired a 10% stake in Parkway Parade Partnership Pte Ltd (PPP) for a consideration of around S$88.9 million.
PPP indirectly holds a 77.09% interest in the share value of Parkway Parade, an integrated office and retail asset.
The mall and office building will have a direct connection to Marine Parade MRT station once it is completed.
The property is planned for AEIs that will see it invigorated with new retail and food and beverage (F&B) tenants.
This acquisition was financed through internal resources and debt facilities.
Assuming the acquisition was completed on 1 July 2022, DPU is projected to improve from S$0.0245 to S$0.0247 for the first half of fiscal 2023 (1H FY2023).
The REIT’s gearing as of 31 December 2022 will be 40.4% as a result of this transaction.
iREIT Global (SGX: UD1U)
iREIT Global has a portfolio comprising five freehold office properties each in Germany and Spain, and 27 freehold retail properties in France.
The REIT is diversifying into the retail parks asset class with its latest acquisition.
iREIT Global has agreed to purchase a portfolio of 17 retail properties across France for consideration of €76.8 million.
These properties are fully leased out to B&M France SAS, a wholly-owned subsidiary of the B&M Group (LON: BME), a leading European discount retailer.
The properties are fully occupied and have a weighted average lease expiry (WALE) of around 6.8 years by gross rental income.
These new assets are projected to generate a net property income (NPI) yield of 7.9%.
In addition, there is also a potential upside in income for the REIT through the further development of existing sites for commercial use.
This acquisition is projected to increase iREIT Global’s DPU by 2% from €0.023 to €0.0235.
CapitaLand Ascendas REIT (SGX: A17U)
CapitaLand Ascendas REIT, or CLAR, owns 230 industrial properties with an AUM of S$16.7 billion as of 31 March 2023.
Last month, CLAR announced the acquisition of The Shugart, an integrated high-specification research and development facility and business park in Singapore, for S$218.2 million.
The property is fully occupied by Seagate Singapore, a unit of Seagate Technology (NASDAQ: STX).
The initial NPI yield is 8.3% but will fall to 7.8% after factoring in transaction costs.
The estimated date of completion for this acquisition is in the second quarter of this year.
This purchase will strengthen CLAR’s portfolio as the asset is a high-quality business park occupied by a reputable global technology tenant.
DPU post-acquisition is expected to increase by 0.7% from S$0.015798 to S$0.15908.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, owns a portfolio of 85 properties in Singapore and 56 in the US with an AUM of S$8.8 billion as of 31 March 2023.
In late May, the REIT announced the acquisition of a 98.47% stake in a newly-built data centre in Osaka, Japan, for around JPY 52 billion (approximately S$507.9 million).
The asset has a remaining land tenure of 70 years from 1 October 2020 and the completion of the acquisition is slated for the third quarter of this year.
The purchase of this data centre will bump up MIT’s AUM to S$9.3 billion and increase the industrial REIT’s data centre exposure from 53.7% to 56.3%.
MIT’s portfolio WALE will also increase from 3.9 years to 4.5 years.
The DPU for fiscal 2023 (FY2023) is projected to increase by 2.1% from S$0.1357 to S$0.1385.
Net asset value will also inch up 0.5% from S$1.85 to S$1.86.
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.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
