Why REITs Aren’t Just for the Pensioners
Picture a time when one of my buddies—still in his twenties—tripped over the word “REIT” and declared, “I’ll skip those for sure.” He’d joke that they’re only for the old‑fashioned, income‑chasing retirees, while he’d rather chase the next big thing in growth.
Fast‑forward to today, and the reality is that sturdy REITs can actually deliver both the dividends and the capital gains that most investors love.
Take Frasers Centrepoint Trust (FCT) for instance. This retail‑focused REIT, which owns a block of well‑known malls, started trading at $1.48 back in October 2010. A decade later it closed its share price at $2.36, a neat 59 % jump in price alone.
But that’s not the whole story. Over the last nine years the cumulative dividends paid out nearly $1 per share. Add that Dividend to the 59 % price appreciation, and you’re looking at a total return of roughly 127 % – which works out to about 8½ % per year when compounded.
Not bad for a vehicle that was supposedly “just a paycheck.” This example shows that growth and income can coexist in the world of REITs.
Three Reasons Why REITs Mix Growth With Dividends
- Managed Leases and Long‑Term Contracts – REITs own properties that earn steady rental income. Those leases often span 10–15 years, giving the fund a predictable cash flow that fuels both dividends and reinvestment in new, higher‑yield properties.
- Capital Appreciation Through Property Value – As urban trends shift, retail and office spaces can increase in value. When a REIT sells a building or re‑values its assets, that entire appreciation can add to shareholders’ wealth, beyond the regular dividend payouts.
- Tax‑Efficient Structure – REITs pass through most of their income to investors, avoiding corporate taxes. That means more money in your pocket for reinvestment or wild‑card purchases—graduating from a pure income fund to a hybrid one.
So next time you see a REIT on the screen, think less “retirement income” and more “steady growth with a side dish of dividends.” After all, if an investment can offer both a steak and fries, why not go for it?
Growing industry
How REITs Ride the Wave of Growing Industries
When a REIT owns the right kind of property, the rent dial can stay stuck on upward. That means more money in the pocket of the REIT, more cash flowing to each unit holder and a sweeter distribution per unit (DPU) for everyone.
Why Rent Goes Up When Demand Does
- Customers trucked into a market, gunning for space.
- Tenants pat the REIT’s leasing staff and say, “We’ll pay the price if you give us the spot.”
- Higher rental rates back up the REIT’s rental reversion, translating into higher net property income.
Case Study: Data Centres – Hot Property in a Cold Climate
- Covid‑19 turned the world into a data superhighway.
- Businesses digitalised, we all started working from home, and the internet traffic spiked like a fireworks display.
- Keppel DC REIT is the proud owner of 18 data‑centre assets spanning eight countries — the rug‑pull of the long‑term trend.
- Global mobile data traffic is forecast to grow by 31 % every year up till 2025, providing a perfect backdrop for the REIT’s five‑year growth story.
In short, when the world is hungry for a new industry, REITs that own the right kind of property will get the rent check in the mail, and that’s a pretty sweet deal to share with their investors.
Accretive acquisitions
How REITs Grow with Smart Acquisitions
Acquisitions can be a fast‑track way for REITs to expand. But the secret sauce? Buy stuff that actually boosts the DPU (dividend per unit).
Why DPU Matters
- If the new assets bring in higher rents or lower operating costs, the DPU climbs.
- Even after issuing fresh units or running a preferential offer, unit holders still taste the extra dividends.
Beyond the Numbers: Diversification
- Adding an asset class that isn’t saturated can smooth out volatility.
- Spreading investment across countries reduces the risk of a single region’s downturn.
Case in Point: Mapletree Industrial Trust
Last month Mapletree snagged a data centre. That move added another 3 % to their overall stake in this fast‑growing segment—shifting from 38.5 % to 41 %. More data centres = more stable income.
FCT’s New Shopping Mall Play
FCT bought five suburban malls through AsiaRetail Fund Limited. Projections show a 4.7 % bump in DPU, based on distributions through the first nine months of FY2020. The malls are a double‑whammy of foot traffic and premium rents.
Bottom Line
When acquisitions are accretive, REITs can grow both their asset size and the DPU that unit holders enjoy. It’s not just a win‑win for the investors; it’s a win for the whole portfolio.
Asset enhancement initiatives (AEI)
Turning Boring Buildings into Gold Mines: The Power of Asset Enhancement Initiatives
When real‑estate trusts (REITs) look for ways to grow their money‑making engine, they sometimes think in plain, solid English: make the property prettier and bigger! That’s the Asset Enhancement Initiative (AEI) strategy – a clever way to turn an ordinary office block into a bustling hub that both attracts tenants and pumps up the rent.
What’s the Big Idea?
Like giving an old house a fresh coat of paint, AEIs involve:
- The refurbishment of existing space to make it more appealing.
- Adding extra square footage so you can lease more rooms.
- Upgrades that let managers quote a higher passing rent or fill extra vacancies.
In the long run, the REIT’s rental income climbs steadily because tenants pay more and the property can accommodate more tenants.
Real‑World Examples: Industrial REITs Leading the Pack
1. AIMS APAC REIT just finished its AEI on the Optus Centre. The upgrades included:
- Brand‑new access roads.
- A pedestrian link from the car park to the building.
- Plush bathroom upgrades.
2. NorthTech at Woodlands saw its value jump from a cool $102 million to an impressive $116.5 million thanks to a well‑executed AEI.
3. Ascendas REIT is on a roll, launching AEIs for three properties totalling $16.3 million. Existing projects at Aperia Mall, 52 and 53 Serangoon North Avenue 4 cost $9.7 million and should finish by Q3.
Why It Matters for REIT Fans
Think of AEIs as giving the property a make‑over that pays dividends. The extra space lets you lease more units, and the fresher look allows you to charge a premium. The result? More cash in the pocket of the REIT, and happier tenants who feel like they’re living in an upgraded condo rather than a dusty warehouse.
Investors love this because it’s a proven path to growing rental income without buying new properties from scratch.
Financial Highlight: How AEI Turns Money Into More Money
- AEIs can boost rental income by up to 15–20 % per property.
- Capital outlay is typically well under 10% of the property’s market value.
- Long‑term payback periods are often less than 5 years.
So, if you’re a REIT investor or just curious about how these giant tenants keep growing, keep an eye out for the next AEI — it’s usually where the magic happens.
Disclaimer: The original article was first published by The Smart Investor. Royston Yang owns shares in Keppel DC REIT.
