3 Singapore REITs That Carried Out Yield-Accretive Acquisitions Recently
The US Federal Reserve recently reduced interest rates by yet another 0.25% in what is the second reduction in the last 10 years since the end of the Global Financial Crisis. With global growth slowing down and the prospect of a recession looming ever closer, it’s likely that interest rates will continue to stay low for the foreseeable future.
REITs, however, have not stayed still and are instead making use of this low interest rate environment to carry out yield-accretive acquisitions to boost distribution per unit (DPU) and to lock in these attractive rates. As REITs are essentially leveraged bundles of real estate assets, low rates will greatly benefit them as it means they can lower their borrowing costs. With lower borrowing costs, they can also carry out acquisitions that enhance returns as the hurdle to achieving better net property income yields also falls.
Here are three REITs that recently carried out yield-accretive acquisitions.
1. Keppel DC REIT
Keppel DC REIT (SGX: AJBU) is the first pure-play data centre REIT listed in Asia. Its investment strategy is to invest in a portfolio of income-generating real estate assets used for data centre purposes. The REIT’s portfolio currently consists of 15 data centres across Singapore, Malaysia, Europe, and Australia.
On 16 September, Keppel DC REIT announced the acquisition of two data centres in Singapore worth a total of around S$585.1 million. These acquisitions will boost the REIT’s assets under management (AUM) by 30.7% to S$2.58 billion and are expected to increase DPU by 9.4%, from 7.32 Singapore cents (in 2018) to 8.01 Singapore cents. The acquisitions will be funded with a combination of equity from both a private placement and preferential offering, as well as debt.
2. Mapletree Industrial Trust
Mapletree Industrial Trust (SGX: ME8U) invests in a diversified portfolio of real estate used primarily for industrial and data centre purposes. Its portfolio consists of 87 industrial properties in Singapore and 14 data centres in the United States. As of 30 June 2019, its total AUM stood at S$4.8 billion.
On 16 September, MIT announced the acquisition of 10 Powered Base Building data centres from Digital Realty and its intent to enter a joint venture with Digital Realty to co-invest in three existing Turn-Key Flex hyper-scale data centres. The total transaction value is around US$1.37 billion (S$1.9 billion). These acquisitions are expected to increase DPU by 3.5%, from 12.16 Singapore cents to 12.58 Singapore cents.
3. Manulife US REIT
Manulife US REIT (SGX: BTOU), or MUST, is the first pure-play US office REIT listed in Asia. Its portfolio consists of eight prime, freehold, and Trophy or Class A office properties. The portfolio is valued at US$1.9 billion and has an aggregate net lettable area of 4.2 million square feet as of 30 June 2019.
On 19 September 2019, MUST announced the acquisition of a 29-story Class A office building located at 400 Capitol Mall for a consideration of US$198.8 million. This acquisition will be funded via a combination of loans and equity fundraising. DPU accretion is expected to be around 2.3%, lifting H1 2019 DPU of 3.04 Singapore cents to 3.11 Singapore cents.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Mapletree Industrial Trust. Motley Fool Singapore contributor Royston Yang owns shares in Keppel DC REIT.