The REIT sector has been weighed down by pessimism last year as both inflation and rising interest rates took the wind out of its sails.
Investors are worried about distributable income taking a hit as operating and finance expenses rise.
Despite these headwinds, REITs are still a great asset class for income-focused investors as they need to pay out at least 90% of their earnings as distributions.
Of course, you still need to be selective when choosing a REIT for your portfolio.
With a possible recession looming, investors should lean more towards REITs that are resilient in the face of economic troubles.
Here are three REITs you can count on for dependable dividends even if the economic situation worsens.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT with a portfolio of three Singapore hospitals, 57 Japanese nursing homes and strata-titled units in MOB Specialist Clinics in Kuala Lumpur.
The REIT’s total portfolio stood at S$2.3 billion as of 30 September 2022.
The portfolio has a very long weighted average lease expiry (WALE) of 17.2 years and 98.3% of its gross revenue is protected from the downside based on existing lease agreements.
The nature of PLife REIT’s assets makes them resilient during a downturn as hospitals, clinics and nursing homes provide essential medical and aged care services.
Indeed, the REIT’s portfolio has delivered healthy distribution per unit (DPU) growth since its IPO.
From 2008 to 2021, DPU rose from S$0.0683 to S$0.1408.
For the first half of 2022 (1H2022), PLife REIT’s DPU continued to climb, inching up 1.5% year on year to S$0.0706.
The REIT’s annualised DPU of S$0.1412 meant that its units sport a forward distribution yield of 3.7%.
PLife REIT has renewed the leases for its Singapore hospitals to December 2042, providing certainty on its rental income for the future.
The REIT manager also announced major refurbishment works for Singapore’s Mount Elizabeth hospital totalling S$350 million to be carried out over three years.
Once completed, the works will transform the hospital into a modern and integrated medical services hub.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 23 data centres across nine countries worth S$3.6 billion as of 30 September 2022.
The world’s data needs are growing exponentially and were accelerated by the onset of the pandemic.
Moreover, tighter government regulations had crimped the new supply of data centres, ensuring that Keppel DC REIT’s data centres continue to be in high demand.
As of the third quarter of 2022 (3Q2022), the portfolio enjoyed high occupancy of 98.6% with a long portfolio WALE of 8.7 years.
For 3Q2022, gross revenue rose 1.4% year on year to S$70.3 million.
Net property income (NPI) edged up 0.5% year on year to S$64.1 million.
DPU, however, jumped 5% year on year to S$0.02585 as finance income jumped from just S$9,000 to S$2.4 million with Keppel DC REIT’s recent investment in M1’s bond and preference shares.
For the first nine months of 2022 (9M2022), DPU rose 3.4% year on year to S$0.07634.
Keppel DC REIT units offer a trailing 12-month annualised distribution yield of 5.7%.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT, or UHREIT, has a diversified portfolio of 21 grocery and necessity-based properties along with two self-storage properties worth around US$735.7 million.
These properties have a long WALE of 7.6 years and enjoy high occupancy of 96.7% as of 30 September 2022.
The nature of UHREIT’s assets ensures that they will remain in demand should there be an economic downturn as 64% of the portfolio’s tenants provide essential services.
The US retail REIT’s top 10 tenants also include reputable names such as Home Depot (NYSE: HD), Walmart (NYSE: WMT), and BJ’s Wholesale Club (NYSE: BJ).
For 9M2022, UHREIT’s gross revenue jumped 20.6% year on year to US$48.7 million, boosted by a positive contribution from its third and largest acquisition, Upland Square.
NPI rose 12.1% year on year to US$34.5 million while distributable income increased by 7.5% year on year to US$24.6 million.
DPU came in at US$0.0291 for the first half of 2022, translating to an annualised DPU of US$0.0582.
Units of UHREIT offer a forward distribution yield of 12.5%.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT.
