An investor in REITs would have been underwhelmed last year.
The sector only managed to eke out a tiny 0.9% capital gain in 2021.
After distributions were added, REITs as a whole reported a total return of 5.2%.
While this return may seem decent, the performance lags behind the benchmark Straits Times Index (SGX: ^STI), which delivered a total return of 13.6% last year.
Part of the reason for the bearishness was the impending rise in interest rates.
That said, 2022 should be a much better year for REITs, though, as the economic recovery continues to take hold.
REIT investors need to watch out for attributes such as sustainable tailwinds, strong sponsors and a track record of growing distribution per unit (DPU).
Here are four REITs with room to grow both their assets and DPU for 2022.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is a data centre REIT with an initial portfolio of 10 data centres located in the US and Canada worth around US$1.4 billion.
The REIT’s sponsor is Digital Realty Trust (NYSE: DLR), the largest owner, developer and operator of data centres worldwide.
This REIT was just listed recently last December and is the second pure-play data centre REIT after Keppel DC REIT (SGX: AJBU).
There is significant room for DCR to increase its asset base and DPU.
Its sponsor has a pipeline of assets worth around US$15 billion of which the REIT has a right-of-first-refusal (ROFR) over.
Furthermore, DCR’s aggregate leverage stands at just 27%, providing the REIT with debt headroom of US$596 million before hitting the maximum threshold of 50%.
In addition, nearly all its leases have built-in rental escalation clauses of between 1% to 3%, allowing for organic rental revenue growth.
Investors can look forward to a mix of acquisitive and organic growth for the REIT over time as it slowly ramps up its assets under management (AUM) and DPU.
Daiwa House Logistics Trust (SGX: DHLU)
Daiwa House Logistics Trust, or DHLT, is a logistics-focused REIT that also made its debut late last year.
The Japanese-based REIT’s initial portfolio consists of 14 logistics properties in the land of the rising sun valued at S$952.9 million as of 30 June 2021.
The occupancy rate stood at 96.3%, and none of the REIT’s tenants requested any rental relief or abatement during the pandemic, attesting to the strength of DHLT’s tenants.
Like DCR, DHLT is also anchored by a strong sponsor in Daiwa House Industry (TYO: 1925), one of the largest construction and real estate companies in Japan.
The REIT has a healthy pipeline of 28 properties under a ROFR with its sponsor, setting it up for growth through acquisitions in the near future.
Upon listing, the REIT’s leverage stood at 43.8% but by the second quarter of this year.
However, the REIT has said that its assets are expected to be revalued upwards which will reduce its gearing to just 33.1%.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, owns a diversified portfolio of 55 properties in Singapore, Japan and Malaysia.
Its portfolio comprises three private hospitals in Singapore, 51 nursing homes in Japan and a strata-titled specialist clinic in Malaysia, as of 30 September 2021.
The healthcare REIT has demonstrated its ability to continue growing its core DPU over the years despite going through two crises — the Global Financial Crisis in 2008-2009 and the recent pandemic in 2020.
Late last year, PLife REIT announced the signing of new master lease agreements for its three Singapore hospitals.
Their leases were also extended till 31 December 2042, providing investors with significant visibility on rental income.
Pro-forma DPU is expected to rise from S$0.1379 to S$0.1826 at the end of the fourth year after the master lease renewal.
Meanwhile, the REIT also continues to snap up more nursing homes in Japan, with its latest purchase of a nursing home in the Tokyo region in December for around S$37.9 million.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is a logistics-focused REIT with a portfolio of 163 properties spread out across eight countries.
MLT’s AUM stood at S$10.8 billion as of 30 September 2021.
The REIT has had a strong track record of increasing its DPU every single year since the fiscal year 2016.
MLT has undertaken massive acquisitions in the last two years and has a history of making DPU-accretive acquisitions that enhance unitholder value.
In late 2020, the REIT splashed out more than a billion dollars to acquire a total of 25 logistics properties, mostly in China.
A year later, MLT announced a S$1.4 billion acquisition of 17 Grade-A logistics assets in China, Vietnam, and Japan.
This track record of major acquisitions to boost its asset base and DPU bode well for unitholders.
2022 may see more of such opportunities for MLT as it continues to bulk up its portfolio with more acquisitions.
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Disclaimer: Royston Yang owns shares of Digital Core REIT and Keppel DC REIT.