Growth in dividend yield is one of the things that resonates with most REIT investors. In order to grow dividend yield, REITs either have to drive positive rental reversion or acquire new yield-accretive properties.
Among the S-REITs, there are three REITs that have been identified by market analysts to be in a leading position to grow inorganically. According to CIMB and UOBKH, these three REITs have been building a good debt headroom to allow themselves to pursue acquisition growth opportunities going forward.
Investors Takeaway: 3 REITs With Yield-Accretive Acquisition Potential For Growth
- FIRST REIT
First REIT reported 3Q18 gross revenue growth of 5.1 percent year-on-year while net property income grew 5.4 percent year-on-year. The growth is largely due to contributions from Siloam Hospitals Buton, Lippo Plaza Buton and Siloam Hospitals Yogjakarta.
Although it remains operationally robust, First REIT’s unitholders have seen its share price tank recently due to market concerns over rising interest rates and uncertainty following the divestment by major shareholder Lippo Kawaraci. However, the fall in share price does not deny the fact that First REIT’s fundamental is still sound. CIMB notes that minimal refinancing needs for First REIT over FY19-20 also gives First REIT a good debt headroom to pursue acquisition growth opportunities.
First REIT is currently trading at one of its highest level of dividend yield since 2016, which presents a solid buying opportunity for investors.
BUY, TP $1.36; Current share price $0.98
- Keppel DC REIT
Keppel DC REIT finished 3Q18 with earnings that fell in line with consensus expectations. Its distribution per unit (DPU) improved 6.3 percent as contribution from SGP 5, maincubes and Dublin 2 data centres kicked in.
Recently, Keppel DC REIT entered into an agreement with Macquarie Telecom to construct Intellicentre 3 East DC (IC 3) on vacant land within the IC 2 site in Sydney. This is part of Keppel DC REIT’s strategy to expand its footprint in Australia. Once IC 3 is completed, a new 20-year triple master lease with Macquarie Telecom for both IC2 and IC3 will commence. This will give Keppel DC REIT’s earnings a boost.
Overall, CIMB recommends Keppel DC REIT for its exposure to the positive fundamentals of data centres. CIMB also likes Keppel DC REIT for its potential inorganic growth. CIMB notes that Keppel DC REIT’s healthy gearing ratio puts it in a good position to explore new acquisition opportunities in Asia, Europe and US.
BUY, TP $1.51; Current share price: $1.37
- Manulife US REIT
Manulife US REIT reported a set of 3Q18 result that was above expectations, thanks to its four newly-acquired Trophy and Class A quality offices in 2017 (Plaza and Exchange) and 2018 (Penn and Phipps). This led to a 75.3 percent and 74.9 percent year-on-year growth in gross revenue and net property income respectively. Having just signed eight new/renewed leases, Manulife US REIT saw a positive rental reversion of 13.5 percent in 3Q18 as well, which led to positive quarter.
Looking forward, UOBKH foresees Manulife US REIT to grow in line with the global growth outlook by UOB Global Economics & Markets Research. UOBKH believes that higher rental reversions across US office properties as a result of tighter occupancies for Class A inventories at the submarket level will be a key driver for the DPU growth. UOBKH also notes that Manulife US REIT has an acquisition headroom of US$253 million, which will give the manager room for yield-accretive acquisition deals to drive DPU growth.
BUY, TP $1.07; Current share price $0.74