Singapore is home to a wide variety of REITs and business trusts.
These REITs and trusts commonly tap on a mix of organic growth and acquisitions to grow their distributions.
It’s always music to an investor’s ears when his or her stocks announce acquisitions that boost returns.
A growth investor may focus on the profits a business generates but for an income investor, the focus will be on the level of dividends received.
An attractive characteristic of any REIT or business trust is its ability to continue to grow its asset base and distribution per unit (DPU) over the long term.
By doing so, the unitholder will not only enjoy a larger stream of passive income in the future but can also savour capital gains as investors bid up the stock’s unit price.
Here are two such stocks that recently conducted acquisitions to boost their DPU that you may consider adding to your stocks watchlist.
Keppel Infrastructure Trust
Keppel Infrastructure Trust, or KIT, is a diversified business trust with around S$4.7 billion of assets under management (AUM) as of 30 June 2022.
The trust owns a portfolio of infrastructure businesses and assets that provide essential products and services to clients such as government agencies and multinational corporations.
Earlier this month, KIT announced that it will partner with Keppel Asia Infrastructure Fund (KAIF) and Keppel Infrastructure Holdings Pte Ltd (KI) to jointly acquire a South Korean waste management company, Eco Management Korea Holdings, or EMK.
The acquisition will cost around S$666.1 million and KIT will hold a 52% stake in the asset, with KAIF and KI taking up stakes of 30% and 18%, respectively.
EMK is an integrated waste management services player in South Korea and operates six waste-to-energy plants and five sludge drying facilities.
It also owns the third-largest incineration plant in the country and is the largest waste oil refiner in South Korea.
This acquisition is expected to complete by the second half of 2022 (2H2022).
Post-acquisition, KIT’s AUM is expected to grow to around S$5.3 billion.
EMK is an attractive investment as proprietary expertise can be drawn from across the Keppel group to grow the business while also supporting KIT’s ESG targets.
Distribution income per unit (DIPU) for fiscal 2021 (FY2021) is projected to climb by 4.2% from S$0.0385 to S$0.0401, with KIT’s gearing increasing to around 29.5% post-acquisition.
Elsewhere, KIT has also announced a joint investment with Keppel Corporation Limited (SGX: BN4) to acquire a 25% stake in Borkum Riffgrund 2, an operational 465 megawatt (MW) German offshore wind farm.
Both KIT and Keppel Corporation will invest around S$445.3 million for a 20.5% and 4.5% stake, respectively, in this renewable energy asset.
The wind farm has an attractive feed-in tariff and a guaranteed floor price till 2038, providing strong cash flow visibility.
This transaction will increase KIT’s exposure to renewable assets from 4% to 11% and is expected to close by the fourth quarter of this year.
KIT’s AUM is projected to grow to S$6.1 billion after both transactions are completed.
This second acquisition will further boost DIPU by S$0.0016, lifting DIPU to S$0.0417.
Gearing, on the other hand, will increase by 6.8 percentage points to 35.3%.
Ascott Residence Trust
Ascott Residence Trust, or ART, is the largest hospitality trust in Asia-Pacific with an AUM of S$7.6 billion as of 30 June 2022.
Its international portfolio comprises 95 properties with over 17,000 units in 44 cities across 15 countries.
ART is proposing to acquire nine serviced residences, rental housing and student accommodation properties worth S$318.3 million from its sponsor, The Ascott Limited.
Seven of these assets are located in Australia, Japan and Vietnam while the remaining two are in France and the US.
With this acquisition, ART’s portfolio will exceed 100 properties and its total AUM will grow to S$8.3 billion, cementing its status as the largest hospitality trust in the region.
The transaction is expected to complete by November this year subject to approval by stapled security holders at an extraordinary general meeting to be held in September.
Post-acquisition, the proportion of ART’s stable income (comprising longer-stay properties and properties on master leases with fixed rent structures) will increase from the current 69% to 71%.
Distribution per stapled security (DPSS) for FY2021 is projected to rise by 2.8% from S$0.0432 to S$0.0444 after the transaction is completed.
