The historical track record of a REIT speaks volumes about it. If a REIT has been able to consistently deliver growth over a reasonable period, it indicates that the management is making good acquisition decisions or that the REIT’s property portfolio is able to attract and retain tenants at increasingly higher rents.
These are both strong indicators that a REIT can continue to deliver strong growth in the future as well. With that in mind, here are two REITs that have shown a five-year track record of growing their distribution per unit.
First Real Estate Investment Trust (SGX: AW9U) is Singapore-listed REIT that invests mostly in healthcare-related investment properties. It has a portfolio of 20 properties which includes 16 properties in Indonesia, three in Singapore and one in South Korea.
Over the last five years, First REIT has managed to grow its distribution per unit at a compounded rate of 2.8% per annum from 7.5 Singapore cents in 2013 to 8.6 Singapore cents in 2017.
Source: First REIT annual reports
The properties in Indonesia are master-leased to hospital operators and have 15-year terms. These leases also include a built-in rental escalation, which guarantees that the REIT collects more rental income each year. The closest renewal only comes in 2021 and the management team is confident that it will be able to renew the lease with its master tenant.
As such, investors can be confident that distribution per unit will be maintained and likely grow in the future, given the very visible organic rental income growth and long-term lease contracts. At the time of writing, units of First REIT exchanged hands at S$1.34 per unit. This translates to a price-to-book ratio of 1.22 and a distribution yield of 6.45%.
Parkway Life REIT (SGX:C2PU), with its portfolio of 50 properties valued at approximately S$1.75 billion, is Asia’s largest listed healthcare REIT. Its portfolio includes three prominent private hospitals in Singapore (Mount Elizabeth, Gleneagles and Parkway East), 46 healthcare-related properties in Japan and Gleneagles Intan Medical Centre in Kuala Lumpur.
Parkway Life REIT has a commendable record of growing its distribution per unit. Between 2013 and 2017, the trust has grown its distribution per unit (excluding one-off gains) from 10.75 Singapore cents to 12.46 Singapore cents. That translates to a compounded annual growth of 3% per year. The table below shows the distribution per unit over the last five years, excluding any one-off distributions.
Source: Parkway Life REIT annual reports
As is with First REIT, Parkway Life REIT has long lease contracts and built-in rental escalations with its tenants. Its three properties in Singapore are leased to IHH Healthcare Bhd (SGX: Q0F), one of the largest hospital operators in Asia. The leases are triple net, which means that Parkway Life REIT does not bear the cost of property tax, property insurance or property operating expenses. On top of that, there is built in rental-escalations linked to the consumer price index of Singapore, with a minimum rent increase of 1% per year.
Its properties in Japan have a weighted lease term to expiry of around 13 years, with the majority of the properties having “up-only” rent review every few years. These favourable tenant contracts provide the REIT with visible organic rental income growth over the foreseeable future. This will, in turn, ensure that unitholders will likely be able to receive increasing distributions each year.
Units of Parkway Life REIT, however, do not come cheap. At the time of writing, it traded at S$2.65 per piece. This translates to a 50% premium over its book value and a distribution yield of 5.05%, which is one of the lowest yields among Singapore REITs.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of First REIT and Parkway Life REIT. Motley Fool Singapore contributor Jeremy Chia owns units of First REIT.