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3 REITs That Continue to Grow Their Business

Royston Yang
·4-min read
3 REITs That Continue to Grow Their Business

The REIT sector, in particular the hospitality sector, has taken it on the chin last year.

But that does not stop the mergers and acquisitions from happening.

We had written earlier about three REITs that conducted acquisitions recently.

Here are another three REITs that recently purchased assets to grow their business amid an economic recovery.

Ascott Residence Trust (SGX: HMN)

Ascott Residence Trust, or ART, is Asia’s largest hospitality trust with assets under management (AUM) of S$7.3 billion as of 31 December 2020.

The trust’s portfolio consists of 86 properties in 38 cities across 15 countries and includes hotels and serviced residences.

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ART has a strong sponsor in CapitaLand Limited (SGX: C31), a diversified real estate conglomerate that owns and manages a global portfolio worth S$137.7 billion as of 31 March 2021.

For its fiscal 2021 first quarter (1Q2021) business update, ART reported a quarter on quarter increase in revenue per available unit (RevPAU) of property of S$55.

The good news is RevPAU has been increasing for four consecutive quarters.

ART has pushed on with the acquisition of three freehold rental housing properties in Japan for around S$85.2 million.

This acquisition will expand its rental portfolio in Japan and the average earnings before interest, tax, depreciation and amortisation (EBITDA) yield on the properties is around 4%.

Distribution per unit (DPU) for FY2020 is also estimated to rise by 2.6%.

After this acquisition, ART’s gearing will stand at 36.8%, giving the REIT S$1.9 billion of debt headroom for further acquisitions.

Separately, ART also announced a joint investment initiative with CapitaLand’s lodging business unit, The Ascott Limited, to develop a freehold student accommodation asset for around US$109.9 million.

ART will own 45% in the joint venture and this investment is expected to increase DPU by a further 2.1% with an EBITDA yield of around 6.2% after the asset has been stabilised.

Cromwell European REIT (SGX: CWBU)

Cromwell European REIT, or CEREIT, invests in income-producing properties in Europe that are used for office, light industrial or logistics, and retail.

Its portfolio consists of 108 properties located in countries such as Poland, Italy, France and Denmark, with an AUM of around EUR 2.3 billion as of 31 March 2021.

CEREIT announced the acquisition of a modern freehold logistics asset in the Czech Republic last week for around S$16.4 million.

The property is acquired at a net operating income (NOI) yield of 6.4% and has a 97.3% occupancy rate.

This asset is projected to provide a stable income for the REIT and is on a triple net lease (where the tenant pays for all the property’s operational expenses).

An added benefit is that the asset enjoys a long weighted average lease expiry (WALE) of 6.5 years, underpinning stable and predictable rental cash flows for the REIT.

Lendlease Global Commercial REIT (SGX: JYEU)

Lendlease Global Commercial REIT, or LREIT, invests in income-producing properties in both the retail and commercial sectors.

Its current portfolio comprises a leasehold interest in 313 Somerset, a prime retail mall in Singapore, and a freehold interest in Sky Garden, which includes three grade A office buildings in Milan, Italy.

Last October, the REIT also acquired a 5% stake in Jem, an integrated office and retail building.

Last week, LREIT announced that it intends to up its stake in Jem to 31.8%.

The rationale for this is to increase income diversification and resilience as the office component of Jem is 100% leased to the Singapore government with a WALE of 24 years.

The acquisition will cost the REIT around S$347.1 million.

DPU for the first half of fiscal 2021 is estimated to rise from S$0.0234 to S$0.0241 for an increase of around 3%.

The gearing level will be at 33.8%, allowing the REIT significant room for further acquisitions by gearing up.

Jem remains well-tenanted with an occupancy rate of 99.7% as of 31 March 2021, with essential services such as food and beverage, supermarket and hypermarket accounting for 58% of its net lettable area.

This grocery-anchored focus enables the property to remain resilient even if Singapore reverts to either Phase 1 or 2.

There is the potential for LREIT to increase its stake in Jem in the future should other investors divest their interests.

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

The post 3 REITs That Continue to Grow Their Business appeared first on The Smart Investor.