The REIT sector remains under pressure because of the combination of high interest rates and inflation.
Income investors can, however, still rely on REITs for steady, reliable income.
Meanwhile, REIT managers are also not sitting still but remain active in capital recycling.
Capital recycling involves replacing older, lower-yielding properties with newer ones through acquisitions and divestments.
Here are four REITs you can keep your eye on for June that have engaged in capital recycling in recent weeks.
CapitaLand India Trust (SGX: CY6U)
CapitaLand India Trust, or CLINT, is an Indian property trust with a portfolio of 10 IT business parks, three industrial facilities, one logistics park, and four data centre developments.
The REIT’s assets under management (AUM) stood at S$3.1 billion as of 31 March 2024.
CLINT entered into a forward purchase agreement to acquire 2.5 million square feet (sqft) of IT buildings in HITEC City, India.
HITEC City is a major office and IT hub located in Hyderabad where many multinational companies can be found.
The REIT will provide funding for up to S$34.7 million for the repayment of existing loans by the vendor for the purchase of land and other expenses.
Upon completion of the construction of each phase of the project along with 90% leasing, CLINT will purchase shares of the special-purpose vehicle (SPV) developing each respective phase.
This structure makes the acquisition attractively priced relative to market capitalisation rates.
This transaction also involves Phoenix Group for which CLINT has an existing relationship and is well-known for its project execution track record.
This acquisition is expected to increase distribution per unit (DPU) for 2023 from S$0.0645 to S$0.0647.
ARA US Hospitality Trust (SGX: XZL)
ARA US Hospitality Trust, or ARAHT, is a hospitality trust with a portfolio of 35 select-service hotels with 4,573 rooms across 18 states in the US.
In early May, the manager announced that it was divesting two hotels, Hyatt House Shelton (HHS) in Connecticut and Hyatt House Philadelphia Plymouth Meeting (HHPM) in Philadelphia.
The total consideration for these two hotels was US$31 million.
HHS has 127 rooms, commenced operations in 2010 and was last renovated in 2017.
HHPM has 131 rooms which started operating in 2000 and was last renovated in 2016.
The sale was conducted at a slight 1.3% discount to the independent valuation of the properties.
The rationale for the divestment was that both hotels have limited upside with mounting capital expenditure needs.
The proceeds from the sale will be used to reduce bank borrowings or may be redeployed to acquire accretive, higher-yielding properties should these be identified.
For its first quarter 2024 (1Q 2024) business update, ARAHT saw revenue inch up 0.2% year on year to US$36.2 million while net property income (NPI) improved by 1.1% year on year to US$6.4 million.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, has a portfolio of 100+ predominantly freehold properties in countries such as the Netherlands, Italy, Poland, France, Germany, and Finland.
Its AUM stood at around €2.2 billion.
CEREIT announced that it was divesting two assets in Finland and Italy for €7.2 million.
These two properties are non-core and were sold at a blended 2.1% premium to their latest valuations.
This transaction, along with the sale of Grojecka 5 in Poland, reduced CEREIT’s exposure to both Poland and Finland from 12% to 10.4%.
With these transactions, the REIT manager has executed €260.5 million of divestments at a 13.8% premium to valuation.
Management targets to sell up to €400 million of properties that should be completed in the next few years.
CEREIT’s 1Q 2024 business update was downbeat, with gross revenue dipping by 2.7% year on year to €53.3 million and NPI also falling by 2.7% year on year to €32.7 million.
Elite UK REIT (SGX: MXNU)
Elite UK REIT, or Elite, was formerly known as Elite Commercial REIT.
The REIT’s portfolio comprises freehold properties with more than 99% of gross rental income backed by the UK government.
In mid-April, the REIT announced that it would be expanding its investment strategy to include other defensive sectors.
The portfolio can now include non-government tenancies and sectors such as student housing and build-to-rent residential.
These “living sector” assets also include social housing and senior living.
Elite’s properties may be re-let for commercial or other uses or repositioned and disposed of with capital recycled back onto the balance sheet.
Meanwhile, the manager has identified a potential data centre development site in Blackpool, UK and sees the opportunity to convert a property into a student housing asset in Dundee.
The aim is to reduce gearing to below 40% and focus on high-value assets to unlock value and increase the portfolio’s asset base.
The REIT reported a mixed set of results for 1Q 2024.
Revenue edged up by 0.8% year on year to £9.2 million but DPU fell by 21.2% year on year to £0.0067 because of an enlarged share capital base.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
