4 REITs That Have a High Chance of Raising Their DPUs
The Singapore stock market is well-known for being a dividend-lover’s paradise.
Not only are dividends received free of personal income tax but there is also a wide variety of REITs that investors can select from.
REITs are recognised as reliable dividend payers as they need to dole out at least 90% of their net profit as distributions to enjoy tax benefits.
However, in recent months, REITs have come under pressure because of soaring inflation and rising interest rates.
These headwinds threaten to lower distributable income as REITs grapple with higher operating and finance costs.
Despite the tough conditions, there are still several REITs that have a high chance of raising their distribution per unit (DPU).
We highlight four such REITs that you may wish to include in your buy watchlist.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 23 data centres in nine countries with assets under management (AUM) of S$3.7 billion as of 31 December 2022.
The REIT has a stellar track record of unbroken increases in DPU since its listing in December 2014.
Keppel DC REIT maintained a high portfolio occupancy of 98.5% as of 31 December 2022.
More than half of its portfolio’s leases have built-in rental escalation clauses tagged to inflation, allowing the REIT’s rental income to keep pace with inflation.
Also, more than 90% of its electricity costs for colocation data centres are passed on to its clients, while master lease clients contract electricity costs directly with their suppliers.
Keppel DC REIT has an impressive track record of growing its portfolio, going from just eight assets at its IPO to 19 properties at the end of 2020.
In the past two years, another four data centres were added, thus boosting its DPU and asset base.
Its sponsor, Keppel Corporation Limited (SGX: BN4), still has a pipeline of more than S$2 billion worth of data centres that can potentially be injected into the REIT.
Frasers Centrepoint Trust (SGX: J69U)
Frasers Centrepoint Trust, or FCT, is a retail REIT that owns 10 suburban retail malls and one office property, all located in Singapore.
The REIT has a stellar track record of raising its DPU since fiscal 2007 (FY2007), with a dip experienced only in FY2020 when COVID-19 forced the temporary closure of malls because of movement restrictions.
For the first quarter of fiscal 2023 (1Q FY2023), FCT maintained a high occupancy of 98.4% with an average positive rental reversion of 4.2%.
What’s more, tenant sales and footfall have remained strong as suburban malls tend to receive traffic mainly from locals who visit for food and necessities.
FCT recently announced two acquisitions that should further boost its DPU.
The first is the acquisition of an additional 10% interest in Waterway Point while the other is the purchase of a 50% interest in NEX mall.
CapitaLand China Trust (SGX: AU8U)
CapitaLand China Trust, or CLCT, has a portfolio of 11 malls, five business parks and four logistic parks located in 12 cities within China.
In 2022, the REIT’s DPU fell by 14.1% year on year to S$0.075 because of higher rental reliefs doled out by the REIT manager as well as asset enhancement initiative (AEI) downtime.
These headwinds were caused by China’s strict COVID-zero policy, especially in the second half of 2022.
Despite the weaker results, CLCT’s retail segment saw a positive rental reversion of 2.7% while its new economy assets chalked up a positive rental reversion of 6.4%.
The REIT should do better this year with China’s reopening and the completion of its AEIs should provide a further boost to rental income and, by extension, its DPU.
Investors should note that CLCT’s long-term roadmap remains unchanged, with acquisition targets that will focus on commercial and integrated developments.
These acquisitions may be sourced from its sponsor, CapitaLand Investment Limited (SGX: 9CI), or from third-party vendors.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, is a retail and commercial REIT with 18 properties in five markets – Singapore, Japan, South Korea, Hong Kong, and China.
MPACT’s DPU for the first nine months of fiscal 2023 (9M FY2023) rose 8.1% year on year to S$0.0736 as the REIT reported a high committed occupancy of 95.5% as of 31 December 2022.
The REIT should enjoy a strong uplift from its Hong Kong and China properties as both countries reopen their borders and drop all COVID-related restrictions.
These two countries contributed 23% to gross revenue and nearly a quarter to net property income for 9M FY2023.
Its Singapore crown jewel, VivoCity Mall, is also undergoing an AEI that will progressively be completed by mid-2023 and deliver a return on investment of more than 10%.
At Festival Walk in Hong Kong, the REIT manager is also working on curating retail offerings and strengthening its appeal as a lifestyle hub.
MPACT intends to leverage its sponsor, Mapletree Investments Pte Ltd, and tap into the latter’s strong network and pipeline to further grow its portfolio and 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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