Friday, February 9, 2024

Some REITs Are Having Lowered DPU. Should We Be Worried?

Recently a few REITs in our portfolio had reported their earnings and not all are having good news. To name a few headlines:

Paragon Reit posts 1.9% lower H2 DPU of S$0.0261


Lendlease Global Commercial Reit H1 DPU down 14.5% to S$0.0212


Aims Apac Reit’s 9M DPU down 4.1% to S$0.0699 on enlarged unit base3


Words such as “down” and “lower” do sound queasy, but if we read the news articles in detail, these were mentioned:


“Paragon Reit’s manager on Monday (Feb 5) attributed the lower overall DPU to rising interest cost.1


(Lendlease Global Commercial Reit) “The lower DPU was primarily driven by higher borrowing costs amid the higher interest rates as compared to a year ago.2


(Aims Apac Reit) “This was due to an enlarged unit base resulting from an equity fundraising in July 2023 to strengthen the…(Reit) balance sheet and support asset enhancement initiatives and future growth opportunities.3


We need to know that the REITs were reporting on past periods. While this is like a report card for them, we must understand the reasons why the distribution per unit (DPU) was lowered and we need to look into the future beyond the numbers published. 


Paragon and Lendlease REITs’ lowered DPU were attributed to high interest rates, and this was no secret as rates accelerated during the past 1.5 years or so. Even so, we see potential in these two REITs for the following two major reasons: the REITs’ crown jewels are malls that are situated along the Orchard Road shopping belt and could benefit from the rising number of tourists visiting Singapore, and; interest rates would be lowered earliest within this year (at least what the Federal Reserve announced, barring any unforeseen economic situations) so the weight of high gearing costs could be lessened.


For Aims Apac REIT’s case, the reduced DPU was due to unit dilution, but the increased capital was for future growth opportunities. Industrial properties are more resilient than office ones as the former do not suffer from the “work from home” issue. Furthermore, future asset enhancement initiatives could see increasing occupancy and tenant retention rates, which stood at 98.1% and 80.3% respectively in their latest report4, not to mention the potential positive rental reversions.


The conclusion thus would be that we would continue to hold these three REITs and may add more to our positions depending on their prices and sizing in our portfolios.




The Bedokian is vested in the mentioned REITs.




1 – Zhu, Michelle. The Business Times. 6 Feb 2024. (accessed 8 Feb 2024)


2 – Oh, Tessa. The Business Times. 1 Feb 2024. (accessed 8 Feb 2024)


3 – Tay, Vivienne. The Business Times. 31 Jan 2024. (accessed 8 Feb 2024)


4 – AIMS AA REIT 3Q FY2024 Business Update, p5. 31 Jan 2024. (accessed 8 Feb 2024)

No comments:

Post a Comment