In the competitive, capitalistic world in which we live, size does matter when it comes to getting noticed. This is why investors search for large and reputable REITs when it comes to investing, as a great track record and decent size usually translate to better growth prospects.
In addition to the above attributes, I personally also like REITs that offer a mix of growth and yield and that have strong sponsors. It’s important to feel confident that the dividend is sustainable, while the slow and steady growth of the REIT’s portfolio will also translate into capital appreciation and a potential rise in distribution per unit (DPU) over time.
Here are two billion-dollar REITs with the above characteristics, both of which have also enjoyed year-on-year growth in DPU.
1. CapitaLand Commercial Trust
CapitaLand Commercial Trust (SGX: C61U) is Singapore’s largest commercial REIT with a portfolio valued at around S$11.3 billion as of 30 June 2019. Its portfolio comprises eight prime commercial properties in Singapore and one property in Frankfurt, Germany.
CCT has a market capitalisation of about S$7.9 billion, and in its latest Q2 2019 earnings report, the REIT saw a 1.9% year-on-year rise in DPU to 2.20 Singapore cents. This was accompanied by a 3% year-on-year rise in gross revenue and a smaller 0.8% year-on-year rise in net property income (NPI). CCT has a strong sponsor in CapitaLand Limited (SGX: C31), which is a global real estate giant with a property portfolio worth around S$103 billion and is present in more than 180 cities around the world.
The REIT has also announced, on the same day, an acquisition of a 94.9% interest in Main Airport Centre in Frankfurt, Germany, for 251.5 million euros. This acquisition increases CCT’s exposure in Germany, diversifies the portfolio further, and is also yield-accretive to unitholders. It’s making plans to upgrade 21 Collyer Quay (at a cost of S$45 million) during a tenant transitional shift period to enhance the asset to achieve a BCA Green Mark Gold rating.
These plans demonstrate the REIT’s commitment to growing the portfolio further as well as engaging in organic growth initiatives to drive future DPU growth for unitholders.
2. Keppel DC REIT
Keppel DC REIT (SGX: AJBU) is a pure-play data centre REIT with a portfolio consisting of 15 high-quality data centres located in key data centre hubs. The portfolio has a total net lettable area of around 1.1 million square feet and spans 10 cities in eight countries. Keppel T&T is the sponsor for the REIT and is a unit of Keppel Corporation Limited (SGX: BN4), a conglomerate with a strong track record in rig building, property, and urban development. The REIT has a market capitalisation of around S$2.2 billion.
The REIT just reported a healthy 6% year-on-year increase in Q2 2019 DPU to 1.93 Singapore cents. That rise in DPU was accompanied by a year-on-year rise of 13.2% for gross revenue and a 13.6% year-on-year rise in NPI.
With data demands increasing globally, Keppel DC REIT is poised to benefit from this strong multiyear trend. A low cost of debt (1.7% per annum) and low aggregate leverage (at 31.9%) also mean the REIT has room to gear up for opportunistic acquisitions. These acquisitions could conceivably grow DPU further for unitholders as data centres are a specialised, niche asset class in which Keppel DC REIT has expertise in managing.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Commercial Trust. Motley Fool Singapore contributor Royston Yang owns shares in Keppel DC REIT.