While most investors invest in REITs to obtain a steady stream of dividend income, the fact is that REITs also grow over time, either through organic means (through asset enhancement initiatives or renovations) or through mergers and acquisitions. Acquisitions are a favoured method because it will instantly provide a boost to both asset size (and value) and usually also comes with an increase in distribution per unit (DPU).
Investors need to be discerning though – not all acquisitions are beneficial for the REIT. Some assets may be sub-par, and even for quality assets, REITs may also end up over-paying for them, resulting in value destruction for existing unitholders. Investors should carefully size up the facts and figures relating to each acquisition to assess if it boosts the overall portfolio’s operational and financial metrics, and more importantly, whether it results in higher DPU.
With that, here are four billion-dollar REITs that recently announced DPU-accretive acquisitions.
1. Frasers Centrepoint Trust
Frasers Centrepoint Trust (SGX: J69U), or FCT, is a retail REIT that invests in retail properties in Singapore. Its portfolio consists of six suburban malls located in established residential townships, such as Northpoint, Causeway Point, Bedok Point, Anchorpoint, Changi City Point and YewTee Point. FCT has a market capitalisation of S$3.1 billion.
FCT had (in May 2019) announced the acquisition of a one-third interest in Waterway Point for S$433.3 million from its sponsor, Frasers Property Limited (SGX: TQ5). The committed occupancy was 98.1%, as of 31 March 2019, and the net property income (NPI) yield was 4.7%. The transaction is expected to be DPU-accretive, raising FY 2018’s DPU by 0.29% from 12.015 Singapore cents to 12.049 Singapore cents.
2. Suntec REIT
Suntec REIT (SGX: T82U) is a REIT that owns retail and commercial properties in both Singapore and Australia, with Suntec City being one of its key assets. Other properties include a one-third interest in One Raffles Quay and Marina Bay Financial Centres Towers 1 and 2. The REIT has a market capitalisation of S$5.4 billion.
Suntec REIT had announced two acquisitions in Australia in July 2019; one was 21 Harris Street and the other was 55 Currie Street. 21 Harris Street has an initial NPI yield of 5.5% and a DPU accretion of 0.49%, while 55 Currie Street has an initial NPI yield of 8% and DPU accretion of 0.79%.
3. Frasers Logistics & Industrial Trust
Frasers Logistics & Industrial Trust (SGX: BUOU), or FLT, is a REIT that invests in industrial and logistics properties. Its portfolio consists of 81 properties located in Australia, Germany and the Netherlands worth around A$2.9 billion. The REIT’s market capitalisation is at S$2.7 billion.
In July, FLT announced the proposed acquisition of 12 prime properties in Australia (3) and Germany (9) for around A$645 million. The properties are all freehold and have 100% occupancy rates. The transaction is expected to be accretive to DPU, adding about 1.1% to the existing DPU based on H1 2019.
4. Cromwell European REIT
Cromwell European REIT (SGX: CNNU) is a REIT that invests in real estate in Europe used mainly for office, light industrial and retail purposes. Its current portfolio consists of 102 properties in major gateway cities in Denmark, Finland, France, Germany, Italy, the Netherlands and Poland. The portfolio has an appraised value of around EUR 2.0 billion, and the REIT’s market capitalisation is around EUR 1.3 billion.
Cromwell had announced in June 2019 an acquisition of six properties in France and Poland for EUR 247 million. The properties had an initial NPI yield of 7.4%, are 100% freehold and have a high occupancy rate of 98.7%. This acquisition is expected to lift DPU by 2.3% due to the upsized placement of EUR 150 million.
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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 Frasers Centrepoint Trust. Motley Fool Singapore contributor Royston Yang owns shares in Suntec REIT and Frasers Logistics & Industrial Trust.