Since their debut in 2002, real estate investment trusts (REITs) have become popular investment vehicles in Singapore.
Not only do they provide investors with exposure to real estate around the world, but REITs also provide healthy cash flows through distributions and are much more liquid than investing in your own property.
Furthermore, a REIT that can increase its distribution per unit (DPU) each year will provide an investor with more income, and its unit price could also appreciate along with its DPU. In that light, here are two REITs that have managed to grow their DPUs in 2018.
Riding on Hong Kong’s economic growth
Fortune Real Estate Investment Trust (SGX: F25U) increased its DPU by 1.0% in 2018. While the increase may seem small at first, it’s an impressive feat considering the trust sold Provident Square, one of its bigger assets, in February last year and has yet to recycle that capital into other assets.
The DPU increase last year also continues a run of eight consecutive years of DPU growth during which Fortune REIT, which currently owns 16 malls in Hong Kong, has managed to more than double its DPU.
Source: Fortune Real Estate Investment Trust 2018 Full-Year Results Presentation
There are also compelling reasons to believe Fortune REIT can continue its impressive growth this year. For one, organic increase in rental income in its existing portfolio seems a near certainty this year, due to 12.7% rental reversion rates secured last year.
Fortune REIT also has the lowest gearing among REITs listed in Singapore. With a gearing of 20.9%, it has about HK$18.7 billion in debt headroom. The low gearing affords the REIT the flexibility to boost DPU through yield-accretive acquisitions.
At the time of writing, Fortune REIT units trade at HK$9.93 per piece, which translates to a distribution yield of 5.2%.
Growth despite currency headwinds
Despite China’s economic growth slowing to a 30-year low and the weakening of the Chinese Yuan against the Singapore dollar, CapitaLand Retail China Trust (SGX: AU8U) still managed to eke out higher distribution to unitholders. In 2018, its DPU grew to 10.22 Singapore cents from 10.10 in the previous year.
While CapitaLand Retail China Trust has not been that consistent in growing its DPU in the past, the next few years could look quite different.
The trust recorded a 9.1% rental reversion rate in its multi-tenanted mall portfolio, which should provide the REIT with visible higher rental income over the next few years. Its malls have also attracted more shoppers in 2018, with a 3.2% increase in shopper traffic on a like-for-like basis. The higher footfall should provide the trust with greater negotiating power with its tenants in the future.
At the time of writing, units of CapitaLand Retail China Trust trade at S$1.51 per piece, giving it a price-to-book ratio of 1 and a distribution yield of 6.75%.
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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 shares of Fortune Real Estate Investment Trust. The Motley Fool Singapore has a recommendation for CapitaLand Retail China Trust.