SINGAPORE (Nov 12): Returns from real estate investment trusts (REITs) are largely from their yield, which they give to investors in the form of distributions per unit, and from some growth. The organic growth element is usually very modest because the rental reversions can only rise so much. Organic growth can also be from asset enhancement initiatives, which give better returns on investment than acquisitions. But, as the pace of US interest rate hikes quickened this year, REITs have made acquisitions in an attempt to maintain DPUs and provide investors with some DPU growth.

However, instead of providing investors with yield plus growth, acquisitions appear to be diluting unitholders’ interests and causing destruction in value. During the past two months, three REITs — OUE Commercial REIT (OUECT), Keppel-KBS US REIT (KORE) and Cromwell European REIT (CEREIT) — announced rights issue-funded acquisitions. Of the three, OUECT’s was the most dilutive and its unit prices are now hovering near the rights price of 45.6 cents.

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Related Stories

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook