Investing in real estate investment trusts (REITs) that provide increasing distribution per unit (DPU) can be hugely rewarding. Not only are investors able to collect higher distributions each year, the market price of the units of the REIT are also likely to increase when DPU increases.
With that said, here are two REITs that will likely see higher DPU in the future.
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Riding on industry tailwinds
Keppel DC REIT (SGX: AJBU) is a REIT that invests entirely in data centres. The REIT currently owns a geographically-diverse portfolio of data centres located in Singapore, Europe, and Australia.
The global cloud infrastructure market is expected to grow by 25% annually from 2019 to 2023. In addition, virtual reality, augmented reality, cloud gaming and mobile data traffic are each expected to grow by double-digits over the next five years, pushing the demand for data centre space.
In particular, the co-location market, where multiple tenants share a single data centre is expected to grow by 15 to 17% annually. With around 75% of Keppel DC REIT’s rental income coming from colocation tenants, the REIT is well-poised to negotiate higher rental rates as demand heats up.
On top of that, three data centres in its portfolio are undergoing expansion or enhancements. Keppel DC Singapore 3 is undergoing retrofitting works for expansion and should be ready in Q3 2019. Keppel DC Dublin 1 and 2 are going through upgrades and are expected to be completed in the second half of 2019 and 2020 respectively. The upgrades should likely provide higher rental income when completed.
With these visible rental income drivers, Keppel DC REIT seems well poised to dish out a higher DPU in the coming years.
Benefiting from the opening of Funan
CapitaLand Mall Trust (SGX: C38U) is likely to pay a higher DPU for the second half of 2019 after the opening of Funan on 28 June. The much-anticipated high-tech mall boasts a unique car park reservation service and drivers are allocated to their lots by a video-based smart car parking facility when they arrive. On top of that, Funan’s Golden Village has four virtual reality pods that provide a range of games and cinema experiences. These unique features will likely continue to draw crowds to the newly-developed mall.
Besides income contribution from Funan, its existing portfolio also enjoyed a 1.2% rental reversion in the first quarter of 2019. The full-year contribution of the acquisition of the balance 70% interest in Westgate will also provide year-on-year DPU growth.
At the time of writing, CapitaLand Mall Trust had an annualized distribution yield of 4.5% based on its first-quarter DPU.
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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 doesn’t own shares in any companies mentioned. Motley Fool has recommended the shares of CapitaLand Mall Trust.