3 Industrial REITs That Can Continue to Grow Their DPU

2021-03-24     thesmartinvestor
3 Industrial REITs That Can Continue to Grow Their DPU

Not all REITs are made the same.

The sector, which has grown by leaps and bounds over the last two decades, can be segmented into five major categories: industrial, commercial, retail, hospitality and healthcare.

Of these, industrial has proven itself to be one of the most resilient during the pandemic.

With the bulk of their tenants being large and reputable multinational businesses, industrial REITs have witnessed significantly less volatility with their rental income.

This crucial characteristic has allowed a select group of industrial REITs to grow their distribution per unit (DPU) despite the challenging economic environment.

Because of this, it makes sense for income-seeking investors to search through the industrial REIT space to look for winners that can continue to grow their DPU post-crisis.

Here are three quality industrial REITs that have the potential to pay out higher DPU in future.

Keppel DC REIT (SGX: AJBU)

Keppel DC REIT is a data centre REIT that owns 19 data centres across eight countries.

As of 31 December 2020, the REIT’s portfolio was valued at around S$3 billion and enjoyed a 97.8% occupancy rate.

The REIT had reported a strong set of earnings for 2020, with gross revenue up 36.3% year on year to S$265.6 million.

Net property income (NPI) jumped 37.7% year on year while distributable income climbed by 38.6% year on year.

DPU rose by 20.5% year on year to S$0.0917, with a trailing 12-month distribution yield at around 3.4%.

The REIT manager concluded three acquisitions in Europe in 2020.

Beyond that, it is also engaging in asset enhancement initiatives (AEI) which are slated for completion by the first half of this year, including the fit-out of a new data hall in Keppel DC Singapore 5 and the conversion of additional space into a data hall for Keppel DC Dublin 2.

As at the end of 2020, the REIT’s aggregate leverage stood at 36.2%, providing ample room for it to borrow more for yield-accretive acquisitions.

With data centres seen as critical infrastructure to support the rapid online shift caused by the pandemic, the global colocation market grew by 15% year on year in 2020 and is set to grow another 14% in 2021.

Smartphone and 5G subscriptions are expected to rise in the years to come, fuelling continued demand for data centres and providing Keppel DC REIT with ample growth opportunities.

Mapletree Logistics Trust (SGX: M44U)

Mapletree Logistics Trust, or MLT, is a logistics-focused REIT with a portfolio of 156 properties located in various countries in Asia.

Assets under management stood at S$10.2 billion as of 31 December 2020.

MLT remained resilient throughout the crisis, with its fiscal 2021 third-quarter revenue up 15.5% year on year to S$139.9 million, driven by contributions from new acquisitions and a completed redevelopment project in Shanghai.

NPI rose 14.9% year on year to S$124.7 million while distributable income increased by 10.2% year on year.

DPU inched up by 1% year on year to S$0.02065 due to an enlarged unit base from its recent equity fund-raising exercise.

As of 31 December 2020, the REIT’s gearing level stood at 36.8% with a low cost of debt of just 2.2%, leaving ample room for more acquisitions.

Back in October last year, the REIT splashed out over S$1 billion in a spate of acquisitions to purchase a total of 25 logistics properties.

And the REIT is not slowing down, either.

In March alone, Mapletree Logistics Trust completed the acquisition of five logistics facilities in South Korea, and announced the acquisition of another two logistics properties in India.

Ascendas REIT (SGX: A17U)

Ascendas REIT is Singapore’s largest industrial REIT and is one of the REITs managed by CapitaLand Limited (SGX: C31).

As of 31 December 2020, the REIT owns a portfolio of 200 properties spread across Singapore, Australia, the UK and the US, with assets under management totalling S$13.7 billion.

For its fiscal year 2020, the REIT reported a rise of 13.6% year on year in gross revenue to S$1.05 billion.

NPI increased by 9.4% year on year to S$776.2 million while distributable income rose by 6.7% year on year.

DPU, however, declined by 6.1% year on year to S$0.14688 due to the impact of COVID-19 and tenant relief measures extended by the manager.

Despite the slightly lower DPU, the REIT is pressing on with acquisitions, with a recent announcement that it will acquire a portfolio of 11 data centres located across Europe.

The REIT’s sponsor, CapitaLand Limited, had also recently announced a major restructuring that seeks to spin off its real estate management arm into a separate listing.

This proposal is subject to the approval of shareholders of CapitaLand but if it goes through, it could mean that the REIT may have more avenues for growth under a new asset-light investment management structure.

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Disclaimer: Royston Yang owns shares in Keppel DC REIT.

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