3 Solid Singapore REITs That Could Potentially Raise Their DPUs
REITs are a great asset class for income-seeking investors.
They are required to pay out at least 90% of their earnings as distributions to enjoy tax benefits, making them dependable sources of passive income.
However, of late, the twin challenges of high inflation coupled with surging interest rates have dampened sentiment towards the REIT sector.
These headwinds have crimped the distribution per unit (DPU) for many REITs as the managers cope with higher operating and finance expenses.
However, there is a small batch of REITs that have the potential to announce higher DPUs.
These REITs are not only well-managed but have strong tailwinds to support future growth.
We present three such REITs that may continue raising their DPU in the coming quarters.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 23 data centres across nine countries with assets under management (AUM) of S$3.7 billion as of 30 June 2023.
The REIT has an impressive track record of uninterrupted DPU increases since its IPO in December 2014
DPU increased from S$0.0651 in 2015 to S$0.10214 in 2022.
The REIT manager has also more than tripled the REIT’s AUM from just S$1 billion at IPO to its current size.
In addition, Keppel DC REIT also boasts a strong sponsor in blue-chip asset manager Keppel Corporation Limited (SGX: BN4).
The data centre REIT looks poised to continue its unbroken track record of DPU increases.
For the first half of 2023 (1H 2023), it reported a 3.6% year on year rise in gross revenue to S$140.5 million.
Net property income (NPI) increased by 3.3% year on year to S$127.4 million while DPU inched up from S$0.05049 to S$0.05051.
The REIT manager plans to continue its disciplined pursuit of data centre acquisition opportunities to grow both its AUM and DPU.
Investors should remember that its sponsor also has a pipeline of more than S$2 billion of data centres that could potentially be injected into the REIT.
Data centre demand should remain robust as it will be driven by the adoption of new technologies such as generative artificial intelligence along with increased digitalisation by corporations.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT with a portfolio of three hospitals in Singapore, 57 nursing homes in Japan, and strata-titled lots/units in MOB Specialist Clinic in Malaysia.
Its AUM stood at S$2.2 billion as of 31 December 2022.
Like Keppel DC REIT, PLife REIT also has an unbroken track record of higher core DPU over the past 14 years.
DPU increased from S$0.0683 in 2008 to S$0.1438 in 2022, more than doubling over this period.
For 1H 2023, the REIT has continued to post higher DPU with the payout rising by 3.3% year-on-year to S$0.0729 on the back of a 25.1% year-on-year rise in NPI.
The increases came about from acquisitions of nursing homes that the REIT conducted in 2022 along with higher rent from its Singapore hospitals under the new master lease agreements.
These new agreements stipulate that rents are guaranteed to rise by 3% per year from this year onwards because of step-up rental escalation clauses.
What’s more, by 2026, rental income will jump by 25.2% year on year to S$99.2 million for these hospitals.
PLife REIT’s cost of debt remains low at just 1.19% with no refinancing needs till February next year, hence it should keep a lid on its finance costs and be able to post higher DPU.
AIMS APAC REIT (SGX: O5RU)
AIMS APAC REIT, or AAREIT, is an industrial REIT with a portfolio of 26 properties in Singapore and three in Australia.
Its AUM stood at S$2.4 billion as of 30 June 2023.
AAREIT reported an encouraging set of earnings for its fiscal 2023 (FY2023) ending 31 March 2023.
For FY2023, gross revenue increased by 17.6% year on year to S$167.4 million while NPI rose 18.7% year on year to S$122.5 million.
DPU improved by 5.1% year on year to S$0.09944.
For AAREIT’s fiscal 2024’s first quarter (1Q FY2024), its financial performance has continued to impress.
Gross revenue increased by 4.5% year on year to S$43.2 million with NPI up 4.2% year on year to S$32.3 million.
DPU continued its rise, edging up 1.3% year on year to S$0.0231.
Portfolio occupancy remained high at 98.1% and AAREIT reported a positive rental reversion of 38%, setting itself up for more DPU increases ahead.
With a low gearing ratio of 32.9%, the REIT could also be positioning itself for acquisitions to further boost its DPU.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
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Disclosure: Royston Yang owns shares of Keppel DC REIT.
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