Centurion Accommodation REIT(SGX: 8C8U) or CAREIT has made a strong start for its IPO debut.
Its unit price climbed over 6% in the first week of trading on the SGX, from its IPO price of S$0.88 to above S$0.93 at time of writing.
Not bad at all for a REIT that owns dormitories and student housing.
These assets may not sound glamorous, but they are essential.
CAREIT, sponsored by Centurion Corporation (SGX: OU8), focuses on Purpose-Built Workers Accommodation (PBWA) and Purpose-Built Student Accommodation (PBSA).
These provide beds for foreign workers and international students, both of which are ongoing needs.
Investors are clearly attracted to the income on offer.
CAREIT is projecting distribution yields of 7.47% for 2026 and 8.11% for 2027.
Before you rush to chase those yields, it is worth looking more closely at what drives them.
Here are three things to keep in mind.
A key highlight of the IPO is the acquisition of Epiisod Macquarie Park, a student accommodation property in Sydney.
On the surface, the acquisition looks promising.
It is located near Macquarie University, a major international student hub.
However, the property is not expected to stand on its own immediately.
The sponsor has put in place a master lease that guarantees income until December 2027.
This agreement is meant to cover the “ramp-up” period, when occupancy is expected to climb from 75% in 2026 to 95% in 2027.
That arrangement provides stability in the near term, but it also raises a question.
What happens when the lease ends in 2028?
At that point, the property will need to sustain those occupancy levels without external support.
Because this asset makes up a meaningful portion of CAREIT’s forecast distributions, any shortfall could affect overall returns.
The IPO prospectus includes an important detail.
CAREIT’s manager is entitled to a base fee of 10% of distributable income, as well as a performance fee equal to 25% of any year-on-year increase in DPU.
That is a fairly high percentage compared with many peers.
The intention is to align the manager’s interests with those of unitholders.
In practice, however, the picture is more complicated.
The manager is wholly owned by the sponsor, who also holds nearly half of CAREIT’s units.
There is another detail that investors should note.
The projected yields assume no performance fees will be paid through 2027.
If actual results come in higher than expected, the 25% performance fee applies immediately.
At present, management fees are being paid in units rather than cash. This avoids reducing near-term distributions but does result in more units being issued, which leads to dilution over time.
