S-REITs hit average total returns of 13.6% in 2019 YTD

Strategic acquisitions are also boosting REIT distribution yields.

The combined net asset value (NAV) of real estate investment trusts (REITs) listed on Singapore Exchange (SGX) continued to expand in 2019, with 34 REITs and five stapled trusts hitting YTD average total returns of 13.6% and dividend yields of 6.5%.

The strength of the sector’s performance is pinned on a number of strategic acquisitions. In May, five REITs either announced or completed property acquisitions for their portfolios that are all yield accretive in nature or will, boosting the overall distribution yield of their respective portfolios.

Also read: Here's why investors ditch developer stocks for REITs

Frasers Centrepoint Trust (FCT) announced its intention to acquire one-third interest in Waterway Point for $433.3m. FCT noted that distributable income is projected to increase 12%, with a 0.29% increase in distribution per unit (DPU) expected post the acquisition.

Meanwhile, AIMS APAC REIT (AA REIT) announced that it is expanding its footprint in Australia after entering into a sales and purchase contract with GSM Rocket Australia to acquire Boardriders APAC HQ in Queensland, Australia for $36.55m (A$38.46m). “The post-acquisition DPU and DPU yield is expected to increase 0.8%,” SGX noted.

Similarly, Sasseur REIT revealed the completion of its first acquisition since its March 2018 IPO. Sasseur REIT bought additional shop units with existing tenancies at the annex block of Sasseur (Hefei) Outlets from third-party vendors for a purchase consideration of $19.62m (RMB98.3m), representing a discount of approximately 4.1% compared to valuation.

Its management also noted that acquisition is expected to increase the REIT's DPU and NAV per unit from $0.0513 and $0.903 to $0.0518 and $0.904, respectively, being DPU and NAV accretive on a pro forma basis.

The manager of Manulife US REIT (MUST) also announced it had completed the acquisition of property in Fairfax, Virginia, Washington, D.C. A private placement raised gross proceeds of US$94m, of which US$89.4m was used to partially fund the acquisition of the property. Post the accretive acquisition, the distributable income is expected to rise 12.6% with DPU expected to rise 3.3% to US$0.0576 and adjusted DPU expected to rise 2.6%.

Also read: Manulife US REIT buys US freehold Class A office building for $166.09m

EC World REIT revealed the proposed acquisitions and master lease agreements of Fuzhou E-commerce with a land area of 88,000 sqm. The post-acquisition net property income (NPI) is expected to rise 16.4%, and DPU is expected to edged up 1.6% to $0.0628.

“This accretion is based on historical pro forma financial effects for FY 2018 assuming EC World REIT had purchased the Fuzhou E-Commerce on 1 January 2018, and held and operated the Fuzhou E-Commerce through to 31 December 2018,” SGX noted.

The local bourse further highlighted that Singapore’s REITs are also attracting investment flows from global funds, which can include private equity funds.

On 9 May, a sixth hospitality trust, ARA US Hospitality Trust, was listed on the SGX, with a seventh, Eagle Hospitality Trust, scheduled to list on the bourse on 24 May.

“REIT popularity in Singapore is exemplified in multiple ways - they make up one-tenth of the Straits Times Index (STI) stocks, all of the STI Reserve List stocks, approximately one-tenth of the total market capitalisation of stocks listed on SGX, and a quarter of the top 20 stocks by turnover on a day-to-day basis,” the bourse highlighted.