You will be able to read distribution per unit and explain why it matters more than total distributions.
Darren's REIT put out a results presentation with a large green number on the first slide: distributable income up 20% on the year. He felt good about it until he checked his own distributions, which had gone down. Both figures were correct. The REIT had grown, and he had received less.
The number that explains the gap is the one this lesson is about.
DPU, distribution per unit, is the REIT's total distributable income for a period divided by the number of units in issue. It is the amount each unit receives. If you hold 10,000 units, your distribution is 10,000 times the DPU.
Results presentations report both total distributable income and DPU, usually on the same slide. The total tells you about the REIT as a business. DPU tells you about your income. When they move in different directions, DPU is the one that pays you.
Lesson 4.2, The payout rule and tax transparency, explained that S-REITs keep little income, so they buy new properties with new debt and new units. That is how total income and DPU can part ways.
With made-up figures, a REIT has distributable income of S$200 million and 2,500 million units in issue. DPU is S$0.08.
It buys a portfolio of properties, funded partly by borrowing and partly by issuing 700 million new units. The next year, distributable income rises to S$240 million, up 20%, which goes on the first slide. But units in issue are now 3,200 million. DPU is S$240 million divided by 3,200 million, which is S$0.075. Each unit receives about 6% less than before.
That is Darren's REIT. The acquisition added income, but not enough to cover the extra units and the interest on the extra debt. Unitholders own a bigger REIT and receive less per unit.
The opposite also happens. An acquisition that adds more income than it adds units and interest raises DPU, and is described as DPU-accretive. Module 7 shows how to test that claim before the deal, and why managers paid on size, as lesson 4.3 described, may have reasons to do deals that are not accretive.
One year's DPU tells you little. A run of five years or more shows whether the manager's decisions have grown your income or only the REIT's size.
Take DPU for each financial year from the annual reports. Most REITs include a five-year summary near the front of the annual report, which is a good starting point; check the figures against each year's own report. Lay them out year by year and look for the direction: rising, flat, falling, or a fall and a recovery.
Then mark two kinds of year. The first is any year with a capital distribution, the one-off payments from property sales described in lesson 3.3, One-offs, specials and payouts that will not repeat. Note the capital part separately, because DPU including it overstates the recurring income. The second is any year with a large issue of new units, from a rights issue, preferential offering or placement. The results announcement for that year will mention it. Those years explain many of the movements in the line.
You may also see DPU restated after a rights issue. When a REIT issues units at a discount to existing holders, it sometimes adjusts past DPU figures so they can be compared with the new number of units. If a DPU series looks inconsistent between two annual reports, check the notes for a restatement.
The REIT version of dividend yield uses DPU. Distribution yield is the trailing DPU, the distributions per unit over the last twelve months, divided by the current unit price.
With made-up figures, a REIT whose last twelve months of DPU add up to S$0.08 and whose units trade at S$1.10 has a distribution yield of about 7.3%.
Everything from module 3 applies. Use recurring DPU, without capital distributions, when you calculate the yield you plan on. Check whether a website shows trailing or forward DPU. And remember that a high distribution yield often means the unit price has fallen ahead of an expected cut.
DPU is the starting point, not the full picture. A REIT can hold DPU steady for a while by releasing retained income, by paying out capital, or by borrowing more against a rising property valuation. None of that shows in the DPU line on its own. The rest of this module gives you the numbers that show whether DPU can last: debt in lesson 5.2, leases and occupancy in lesson 5.3, and asset values in lesson 5.4.
In the activity you will record five years of DPU for one S-REIT and mark the capital distribution years and the large unit issues, which will tell you whether its growth has reached the unitholders.
Record five years of DPU for one S-REIT from its annual reports and mark any year with a capital distribution or a large unit issue.
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