REIT-TIREMENT - REIT Investing and Personal Finance

A blog about REIT investment and personal finance

Saturday, March 14, 2020

Case Studies for SREITs with Capital Distribution from Disposal

In previous post, I did calculations for DPU downfall for SREITs with more than 5% income support in their distribution. For this post, we will look at another aspect in which SREITs use its capital distribution to boost their DPU. I will only focus on SREITs with more than 5% capital distribution from disposal in their distribution.
Before we start, we will need to set the definition right. There are quite a numbers of SREITs that used the phrase "capital distribution" in their Distribution Statement and this misled a lot of people to think that such dividend is from their cash holding. In fact, most "capital distribution" are refer to distributable income from oversea properties. In tax perspective, income from oversea properties is considered as "capital distribution". Of course, distribution from disposal of properties is considered as "capital distribution" too, as it distribute cash (capital).

Now, what are those SREITs with more than 5% capital distribution from disposal for past 1 year ?After some research, there are 5 SREITs, which are Ascott Residence Trust, CDL Hospitality Trusts, ESR-REIT, Keppel REIT, Suntec REIT. Let's work out the detail below:

i) Ascott Residence Trust
From 4Q 2019 Financial Statement
From 4Q 2018 Financial Statement
The divestment is approx. S$353.3 mils and Ascott distributed S$17.5 mils from this divestment. The capital distribution from disposal is around 9.3% of amount distributable to unitholders in 2019. Since remaining fund is huge, management can CHOOSE to distribute this to support its DPU during downturn, especially during this Coronavirus outbreak, provided they have enough cash.

ii) CDL Hospitality Trusts
From 4Q 2019 Financial Statement
From 2017 Annual Report
CDL Hospitality Trusts divested Brisbane properties at A$77 mils, around S$80 mils at that point of time. They have distributed S$15.9 mils from 2018 to 2019. Capital distribution from disposal is 8.2% in 2019 and 6.2% in 2018. Same like Ascott, management can CHOOSE to distribute this fund to support its DPU during downturn.

iii) ESR-REIT
From 4Q 2019 Financial Statement
From 2018 Annual Report
From 2Q 2019 Presentation
This required some calculation:
a) Ex-Gratia from SLA - $6.3 mils (finished)
b) 9 Bukit Batok St 22 - $23.9 mils (left 8.06 mils)
c) 31 Kian Teck Way - $5.7 mils
Total up would be $35.9 mils, in which ESR-REIT distributed S$22.139 mils. In 2019, it distributed $16.1 mils capital which is 12.1% of distribution to unitholders. At this rate, the remaining amount would be finished by 2020.  Let assume the following for calculation:
i) Distribution amount to be annualized from 4Q : S$ 34,703 mils with S$ 5,625 mils capital distribution (to account the affect of acquisition) and consistent throughout 2020 to 2021, adjusted when capital from disposal end.
ii) Outstanding increased by 0.5% per year based on outstanding shares after the preferential offer.
iii) Assume ESR-REIT distribute 100% of disposal amount.

20192020 (Est.)2021 (Est.)
Distribution, S$ mil132.566130.073116.312
Capital Distribution from Disposal, mil16.10013.7610.000
Average Outstanding Shares, mil3,355.0483,433.7573,450.926
DPU, S$ cent4.0113.7883.370

DPU might drop by 5.5% in 2020 and further drop by 11% in 2021. Although ESR-REIT has no income support, but its capital distribution from capital is quite high %. With current gearing of 41.5%, it would be quite impossible for management to raise DPU without equity fundraising.

iv) Keppel REIT
From 4Q 2019 Financial Statement
From 2018 4Q Presentation
The capital distribution from disposal of S$12 mils is around 6.3% of FY2019 distribution. Without taking disposal of Bugis Junction Tower into consideration, the capital gain remaining amount is still high. Moreover, it acquired T Tower in 2019 and 311 Spencer Street development is expected to completed by 2Q 2020. If management CHOOSE to continue distribute this fund, then its DPU would likely to be maintained.

v) Suntec REIT
From 4Q 2019 Financial Statement
From 4Q 2015 Financial Statement
From 2018 Annual Report
Suntec REIT started this capital distribution from Park Mall disposal since 1Q 2016. To date, it has distributed S$118 mils. The capital distribution from disposal of S$26 mils is 9.9% of FY2019 distribution. 9 Penang Road has received its temporary occupation permit in end October 2019 and target to start occupation in 2Q 2020. Same like Keppel REIT, if management CHOOSE to continue distribute this fund, then its DPU would likely to be maintained.

Besides the above, Frasers Commercial Trust and Mapletree Logistics Trust also do the same. Since Frasers Commercial Trust merger with Frasers Logistics and Industrial Trust is confirmed, I would just omit its case study. Whereas for Mapletree Logistics Trust, it has been continuously distributed capital from disposal from 4Q 2015, but only account for 3.8% of its FY2019 distribution.

Conclusion:
From these exercise, we can clearly see that SREITs could distribute more than disposal gain amount to boost its DPU, but I rarely seen others talk about this topic. In my opinion, Ascott, CDLHT, Keppel REIT managements are doing good job for capital recycling. However, I feel that it would be better for them to use these amount for acquisition, AEI or paying down debt.
This is the longest post I have written till date, although screenshots took a big portion of it. The second longest post is How to Start Investing in REITs which I posted a year ago.

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