Investors often get caught up searching for investments that provide a high dividend yield. In reality, the distribution yield is only good for the here and now. If you wish for high returns over a longer time frame, it is more important to find investments that can deliver consistent, or even growing distributions each year.
With that in mind, here are two real estate investment trusts (REITs) that have increased their distributions this quarter, and I believe are well placed for growth in the coming years.
Ascendas India Trust (SGX:CY6U)
Ascendas India Trust has had a spotty past with volatile DPU track record. However, that could all change in the future. In its recent quarter, the trust delivered good growth as new acquisitions, higher rental income, and contributions from new developments propelled DPU by 23%.
The trust has also planted seeds of growth by finalising new acquisitions, and developing existing land to increase its leasable area. In total, Ascendas India Trust is in a position to increase its leasable area by 58.7% in the next 10 years, which can provide a significant boost to rental income.
Ascendas India Trust also has a relatively low gearing ratio of 31%, which provides it S$523 million in debt headroom to fund future acquisitions. With management’s track record of making yield-accretive acquisitions, investors can be confident that this money will be put to use some time in the future.
The India rental market also looks to be on the rise with CBRE expecting rental rates in Bangalore and Hyderabad to improve in the coming quarters.
The Indian Rupee exchange rate remains a risk for unitholders, but I believe the risk-reward profile for the trust looks enticing. As of the time of writing, units of Ascendas India Trust exchange hands at S$1.12, giving it a price-to-book ratio of 1.22, and a distribution yield of 5.5%.
Fortune Real Estate Investment Trust (SGX:F25U)
Fortune REIT owns a portfolio of 16 suburban shopping malls in Hong Kong. For the six months ending on 30 June 2018, the REIT delivered growth in most of the key operational metrics. Revenue, distributable income and DPU were up 2.2%, 3.7% and 3.2% respectively. It also maintained a healthy balance sheet with a gearing of just 22.3%, well below the 45% regulatory limit — giving it a debt headroom of HK$17.4 billion. The low gearing gives it the financial muscle to fund more acquisitions in the future.
Fortune REIT also managed to increase its rental rate in the interim. Rental rates secured in the period were 13.6% higher than previous rates, and also marked an acceleration from the 12.8% rental reversion rate from the second half of 2017. The higher rent also looks to be sustainable as there has been strong growth in retail spending in Hong Kong; Total retail sales in Hong Kong increased 13.7% in the first five months of the year.
At the time of writing, Fortune REIT traded at HK$9.30, giving it a price-to-book ratio of 0.59 and a distribution yield of 5.46%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns units in Fortune Real Estate Investment Trust.