For investors in real estate investment trusts (REITs), there are two main methods by which their distribution per unit (DPU) can grow. One is through organic means, such as through positive rental increases (known as “rental reversions”) or asset enhancement initiatives (which spruce up and enhance a property to either make it more attractive to tenants, or to increase the net lettable area). The other is through acquisitions, whereby the REIT purchases stakes in other REITs or property funds, or purchases a property or list of properties.
Of course, not all acquisitions are made equal. A common method for REITs to raise funds for the acquisition is to issue new units of itself, either through a secondary offering or through a preferential offering (i.e. rights issue). If the total DPU is higher than before the acquisition even after accounting for the larger share base, this is known as a “yield-accretive acquisition”. Such acquisitions add value to unitholders as they end up owning a REIT with an enlarged asset base and which also pays a higher DPU.
Singapore Exchange has published a report on four REITs which have carried out yield-accretive acquisitions recently.
1. Frasers Centrepoint Trust
Frasers Centrepoint Trust (SGX: J69U) announced an acquisition of a one-third interest in Waterway Point for S$433.3 million. The transaction is expected to be yield-accretive as total distributable income is projected to rise by 12% to S$124.7 million, while DPU is projected to rise from 12.015 Singapore cents to 12.049 Singapore cents. At 12.049 cents, the projected dividend yield is expected to be 5%.
2. Sasseur REIT
Sasseur REIT (SGX: CRPU) completed its first acquisition since its March 2018 IPO. The REIT acquired shop units with existing tenancies at the annex block of Sasseur (Hefei) outlets from third-party vendors for a purchase consideration of RMB 98.3 million. DPU is expected to increase from 5.128 Singapore cents to 5.179 Singapore cents. At 5.179 cents, the projected dividend yield would be around 6.5%.
3. Manulife US REIT
Manulife US REIT (SGX: BTOU) completed its acquisition of a property in Fairfax, Virginia in Washington DC. Adjusted DPU is expected to rise from 6.05 US cents to 6.21 US cents post-acquisition. and projected dividend yield will be around 7.2% based on this higher DPU.
4. AIMS APAC REIT
AIMS APAC REIT (SGX: O5RU) announced the acquisition of Boardriders APAC HQ in Australia for A$38.46 million. The post-acquisition DPU is expected to increase by 0.8% from 10.25 Singapore cents to 10.33 Singapore cents. The projected dividend yield will be around 7.4%.
Investors should continue to monitor these REITs
Though these four REITs have announced (or completed) yield-accretive acquisitions, investors need to continue to monitor the REIT’s performance as the projected DPU is just a forecast. There could be external events which negatively impact the performance of the acquired property or properties, which may lead to lower than expected distributable income.
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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 shares of Singapore Exchange, Manulife US REIT and Frasers Centrepoint Trust. Motley Fool Singapore contributor Royston Yang owns shares in Singapore Exchange.