The REIT sector went through tough times over the past three years as high interest rates and soaring inflation crimped REITs’ ability to maintain their distributions.
Many REITs saw their distribution per unit (DPU) come under pressure as higher operating expenses and increased finance costs battered them.
Luckily, REITs can employ a variety of methods to mitigate the decline and these methods can also help to boost their revenue and asset base.
We will look at three effective methods used by REITs to boost their DPUs and provide some examples of Singapore REITs that have successfully used these strategies.
Positive rental reversions
Rental reversions refer to the change in rental rates when a property lease is renewed by a tenant.
Reversions measure the difference between the new and old rents and is a key metric used by REITs to assess the demand for their properties and the stability of their rental income.
Hence, a positive rental reversion implies that tenants are willing to pay higher rents when they renew their leases – a sign of strong demand.
Several REITs have reported healthy positive rental reversions during the last earnings season.
Retail and commercial REIT CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, reported positive rental reversion of 8.8% for its retail portfolio and 11.1% for its office portfolio.
AIMS APAC REIT (SGX: O5RU), an industrial REIT, also reported a healthy positive rental reversion of 16.9% for the first half of fiscal 2025 ending 31 December 2024.
Likewise, Keppel DC REIT (SGX: AJBU) saw its portfolio enjoy a ~39% positive rental reversion for 2024 as demand for data centres remained strong.
These strong reversions will stand these REITs in good stead to increase their DPU as they enjoy organic rental income growth.
Asset enhancement initiatives (AEIs)
Asset enhancement initiatives, also known as AEIs, are another effective method that REIT managers utilise to improve their REITs’ DPU.
AEIs represent redevelopments, renovations, or redecoration to enhance the property, enabling it to either command a higher rental rate or to expand the space within (i.e. increasing the property’s net lettable area or NLA).
These AEIs could also involve sprucing up the façade or interiors to make the property more appealing so that tenants will be attracted to lease space within it.
For instance, Frasers Centrepoint Trust (SGX: J69U) recently completed the AEI for its Tampines 1 Mall, achieving a return on investment (ROI) of more than 8%.
The retail REIT also saw the creation of more than 9,000 square feet of NLA that were deployed to prime retail areas.
Next, the REIT is embarking on an AEI for Hougang Mall to expand its retail options, and is targeting an ROI of around 7%.
Over at CICT, the REIT is progressing on its AEIs for the IMM Building in Singapore and Gallileo in Germany.
Once completed, the IMM Building will see reconfigured space with new food and beverage and outlet concepts introduced into the mall.
Mapletree Pan Asia Commercial Trust (SGX: N2IU) is conducting an AEI for its key asset VivoCity.
The AEI, which is scheduled for completion by the end of this year, has increased the number of food kiosks from 21 to 24 and created an additional 14,000 square feet of retail lettable area.
This AEI is projected to generate an ROI of over 10%.
Acquisitions
A third method for increasing a REIT’s DPU involves yield-accretive acquisitions.
These acquisitions also help to boost the REIT’s asset base, giving it a stronger foundation as time goes by.
Keppel DC REIT announced a major S$1.4 billion acquisition of two data centres last year with the transaction being DPU-accretive.
With this purchase, the REIT has also grown its data centre portfolio to 25 data centres worth around S$5 billion.
Frasers Centrepoint Trust recently acquired Northpoint City’s South Wing for S$1.17 billion to boost its portfolio and increase its fiscal 2024 DPU by 2%.
Mapletree Logistics Trust (SGX: M44U) conducted three accretive acquisitions in the first nine months of its fiscal 2025, spending close to S$237 million to scoop up three properties in Malaysia and Vietnam.
CICT was no slouch, either.
In addition to positive rental reversions and AEIs, the REIT manager also acquired a 50% stake in ION Orchard Mall last year for S$1.85 billion.
This yield-accretive acquisition was also supposed to strengthen CICT’s presence in the downtown mall sector.
The examples above show how REITs can conduct choice acquisitions to boost their asset base and protect their DPU.
These three methods, if used in conjunction with one another, can enable REITs to grow their DPUs in spite of the twin headwinds of high interest rates and inflation.
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Disclosure: Royston Yang owns shares of Keppel DC REIT.
