Billion Dollar Club: REAL ESTATE INVESTMENT TRUSTS (REITs)

It was The Edge Singapore’s Billion Dollar Club (BDC) algorithm that spat out AIMS APAC REIT (AA REIT) as the winner in the returns to shareholders over three years.

CapitaLand Integrated Commercial Trust (CICT) won the growth in profit after tax over the three-year period under review, while Keppel DC REIT was top for weighted return on equity (ROE) over three years. Yet, Frasers Centrepoint Trust J69u (FCT) was the overall winner.

The profit after tax category carries the most weight, at 30%, followed by ROE and total shareholder return, at 25% each. The ESG score carries the lowest weight, at 20%. Both CICT and FCT focus on retail malls. Keppel DC REIT is a pure-play data centre REIT anchored in Singapore, and AA REIT is mainly an industrial REIT.

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In 2020, FCT doubled down on suburban malls and expanded its portfolio by completing the acquisition of PGIM Asia Retail Fund (ARF), which gave it five suburban retail malls and an office property. FCT also owns 50% of Waterway Point and 50% of NEX, which it partly acquired earlier this year.

With that, FCT now owns or holds stakes in 10 suburban retail properties and one office asset, valued at $7.6 billion and with a net lettable area (NLA) of 2.5 million sq ft as of September. These assets are strategically located near or next to MRT stations or bus interchanges.

FCT’s manager regularly undertakes asset enhancement initiatives (AEIs) in its malls. It has completed the AEI of Tampines 1 and will embark on AEI for Hougang Mall for $51 million with a target ROI of 7%. Both Tampines 1 and Hougang Mall were acquired from the PGIM ARF portfolio.

CICT grabbed the headlines in September when it announced the proposed acquisition of 50% of ION Orchard for $1.85 billion. On Oct 28, CICT’s independent unitholders voted overwhelmingly to approve the transaction, which was completed on Oct 30.

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Based on a net lettable area of 623,600 sq ft and the agreed valuation of $3.7 billion, ION Orchard is valued at $5,928 psf. “Considered as one of the best and most visible malls along the street, the agreed price will make it one of the priciest retail malls on a Singdollar psf basis to be transacted, justified by its trophy status,” DBS Group Research had said in September.

ION Orchard’s catchment comprises 20,000 residential units in its vicinity; the property saw 4.3 million tourists in 2023, and 160,000 commuters pass through Orchard MRT daily.  ION’s connection to the Orchard MRT Interchange Station drives footfall into its basements.

ION Orchard is CICT’s 22nd property in Singapore, raising its portfolio value to over $26 billion. CICT also owns two properties in Frankfurt, Germany, and three properties in Sydney with a total property value of $24.5 billion based on valuations of its proportionate interests in the portfolio.   

Keppel DC REIT is popular with investors because of its portfolio of 23 data centres. Analysts have said Keppel DC REIT may be getting a 24th data centre. Keppel DC SGP 7, a colocation data centre with a gross floor area of 185,463 sq ft, was completed in mid-2023 and is 100% pre-committed. All the tenants moved in during 1H2024, and analysts expect Keppel DC REIT to acquire SGP7 in due course.

AA REIT outperformed in total return to its unitholders. The mainly Singapore-focused REIT owns 25 properties in Singapore and three in Australia. In FY2024 ended March 31, AA REIT recorded $177.3 million in revenue, a 5.9% y-o-y increase. AA REIT also saw a net property income of $131 million, up 6.9%, and distributions to unitholders also rose by 3.8%, reaching $74.3 million. These exceptional results have helped earn AA REIT the “Highest Returns to Shareholders over three years (Real Estate)” award in this year’s BDC.