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3 REITs Carrying Out Acquisitions to Boost Their DPU in 2022

·4-min read

This year promises to be a bright year for the REITs sector as the global economy continues its recovery.

Meanwhile, REITs have not remained idle.

Several have announced opportunistic acquisitions that seek to boost their distribution per unit (DPU) while increasing their asset base.

Such moves will stand them in good stead as they ride the recovery this year.

Here are three REITs that have undertaken acquisitions recently that promise to raise their DPU.

Ascott Residence Trust (SGX: HMN)

Ascott Residence Trust, or ART, is a hospitality trust with S$7.3 billion worth of assets as of 30 June 2021.

The REIT’s portfolio comprises 89 properties in 39 cities across 15 countries in Asia, Europe, and the US as of 30 September 2021.

Last month, ART announced the acquisition of four student accommodation assets in the US for around US$213 million.

The four properties have a total of 1,651 beds and serve five universities across three states — Pennsylvania, North Carolina, and Ohio.

The assets have an average occupancy rate of 94% during the academic year 2021 and have been in operation for up to two years.

With this acquisition, ART would have built up a diversified portfolio of eight student accommodation assets in just under a year.

The student accommodation sector will now make up 16% of ART’s total portfolio value by asset class, up from 12% before the acquisition.

The REIT’s pro-forma distribution per stapled security for the fiscal year 2020 (FY2020) is set to increase by around 3%.

The acquisition will be predominantly funded by debt.

Post-acquisition, ART’s gearing will be at 37.8%, leaving sufficient debt headroom for the REIT to conduct yield-accretive acquisitions.

First REIT (SGX: AW9U)

First REIT is a healthcare-focused REIT with a portfolio of 20 properties across Asia comprising hospitals, nursing homes, and eldercare facilities.

The REIT went through a tough time after it restructured its master leases in late 2020, but has now emerged stronger after a rights issue.

Last month, First REIT announced its “2.0 growth strategy” to capture the tailwinds in the healthcare real estate market.

Some of the pillars of this strategy include diversification into developed markets and reshaping its portfolio for better growth.

In line with this strategy, the REIT announced its maiden acquisition of 12 Japanese nursing homes for JPY 24.2 billion.

The purchase was made from its sponsor OUE Lippo Healthcare Limited (SGX: 5WA).

The properties are all freehold, have a committed occupancy of 100% and a weighted average lease expiry of 22 years.

These nursing homes are master leased to established and experienced local nursing home operators.

The acquisition will also help to diversify First REIT’s geographic coverage by diluting down its Indonesian exposure (in terms of asset value) from 96.4% to 72.9%.

Pro-forma DPU for its fiscal 2021 first half (1H2022) is estimated to rise by 0.8% from S$0.013 to S$0.0131.

CapitaLand Integrated Commercial Trust (SGX: C38U)

CapitaLand Integrated Commercial Trust, or CICT, owns and invests in quality properties that are used for commercial and/or retail purposes.

As of 31 December 2020, the REIT’s portfolio comprises 21 properties in Singapore and two in Frankfurt, Germany, with a total property value of S$21.8 billion.

CICT has acquired a 50% interest in 101-103 Miller Street and Greenwood Plaza in Sydney, Australia, for a purchase price of around A$422 million (around S$409.3 million).

This property has a net property income (NPI) yield of 4.9% based on 1H2022’s NPI and will be funded by a combination of debt, divestment proceeds and the remaining money from a private placement the REIT previously conducted.

This transaction is expected to be completed in the first quarter of fiscal 2022 (1Q2022), and annualised DPU for 1H2021 is expected to rise by 1% from S$0.1023 to S$0.1032.

This acquisition serves to deepen CICT’s presence in Australia and is the REIT’s third property purchase there.

The property is one of only three premium-grade properties in North Sydney and has excellent connectivity to bus and train networks.

Also, over 60% of the total net lettable area is occupied by tenants with investment-grade credit. The lease terms incorporate rental escalations of between 3% to 5%.

Post-acquisitions of these three Australian properties, CICT’s portfolio will comprise 26 properties worth around S$22.8 billion.

Everyone knows Asia’s healthcare sector is booming with activity, flooded with stocks set to outperform. But some investors might now know how to react. So in our upcoming FREE webinar “Asia’s Healthcare Moment,” we reveal all the top opportunities, so you can get started right away. Click here to register!

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

The post 3 REITs Carrying Out Acquisitions to Boost Their DPU in 2022 appeared first on The Smart Investor.

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