Centurion Club: REAL ESTATE INVESTMENT TRUSTS (REITS)

In the REIT section of the Centurion Club, for companies with market caps below $1 billion, First REIT won the top award for returns to shareholders over three years; Sasseur REIT won the top award for weighted return on equity (ROE) over three years; and United Hampshire US REIT Odbu won the top award for growth in profit after tax for three years and the overall sector winner’s prize.

As at Dec 31, 2023, First REIT owns about $1.14 billion of assets. Of these, 14 nursing homes in Japan and two in Singapore account for 22.7% and 2.8% of its assets, respectively. Indonesia is First REIT’s largest market, with 11 hospitals, two integrated hospitals and a mall, one integrated hospital and a hotel, and one hotel and country club, all making up 74.5% of assets.

In 2021, following a recapitalisation exercise, First REIT announced a 2.0 growth strategy. This strategy comprises four pillars: diversification into developed markets, portfolio reshaping for capital-efficient growth, strengthening the capital structure to remain resilient and continuing to pivot to ride megatrends.

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As part of the strategy, First REIT diversified away from Indonesia, which was its main geographical market, to Japan by initially acquiring a portfolio of 12 nursing homes. Eventually, First REIT’s management would like to have 50% of its assets in developed markets.

In a first step to reshaping the portfolio, First REIT divested Siloam Hospitals Surabaya in 2022 for $40.9 million for a 143% capital gain. A second property, Imperial Aryaduta Hotel & Country Club, has been identified as a non-core asset.

Sasseur REIT’s properties are in China where it owns outlet malls in Chongqing, Hefei, and Kunming. These malls are popular with shoppers just as Sasseur REIT itself is becoming increasingly noticed by investors.

At the heart of Sasseur REIT’s strategy to deliver DPU growth to investors is its entrusted management agreement (EMA), where the REIT entrusts its sponsor, Sasseur Group, with the responsibility of managing the day-to-day operations of the outlets, including driving tenant sales.

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The EMA comprises a fixed component to provide a stable growing income and a variable component to enable unitholders to participate in the upside in sales performances of the REIT’s outlets. Under this model, every tenant sale is captured in the REIT’s bank account, from which a certain percentage is drawn out as the variable rent component.

With the built-in 3% annual step-up of the fixed component under the EMA, Sasseur REIT can achieve fair, transparent and stable growth while aligning the REIT manager’s interests with its unitholders.

The EMA model helped Sasseur REIT win the coveted weighted ROE over three years for The Edge Singapore’s Centurion Club awards. This annual award recognises Singapore-listed companies that have done better than their industry peers in three key metrics: growth in profit after tax, returns to shareholders and weighted ROE.

United Hampshire US REIT owns 20 grocery & necessity assets and two self-storage assets valued at US$768.3 million ($1 billion). Its sponsors are UOB Global Capital and The Hampshire Companies. The properties are located along the US East Coast. Tenants are familiar names such as Trader Joe’s, Sam’s Club, Lowe’s and BJs.

In August, United Hampshire US REIT divested Freestanding Lowe’s and Freestanding Sam’s Club Properties within Hudson Valley Plaza, US$36.5 million, 4.3% above the independent valuation of US$35.0 million as at June 30 and 17.5% above the purchase price of US$31.1 million. The divestment brought aggregate leverage down to 39% from 41.7% with the interest coverage ratio rising to 3.2 times.

Meanwhile United Hampshire US REIT’s annualised 1HFY2024 distribution per unit of 2.48 cents translates into an eye-watering yield of 9.7%, which is likely to attract more investors to this REIT.