During tough times, it’s natural for investors to gravitate towards certainty and safety.
The search for resilience throws up a few options for the defensive investor.
Blue-chip companies can provide investors with the assurance that they can weather economic cycles and crises.
The ability to weather crises is honed from many years of managing different economic situations.
REITs are another avenue for stability as they own portfolios of physical real estate that manage to hold their value even during crises.
Their ability to pay out consistent levels of distributions also makes them a favourite among income-seeking investors.
The COVID-19 pandemic has, however, disrupted certain REIT sub-sectors such as hospitality and retail.
Still, the sector may be down but not out.
With 2021 shaping up to potentially be a year of recovery, the stronger REITs should once again demonstrate their quality.
Here are three REITs that have thus far been relatively unaffected by the pandemic.
Parkway Life REIT (SGX: C2PU)
Healthcare has historically one of the more defensive sectors during any crisis.
And for Parkway Life REIT, this defensiveness has been demonstrated by the REIT’s performance this year.
The healthcare REIT owns a portfolio of 53 properties located in both Singapore and Japan, with a portfolio size of around S$2 billion as of 30 September 2020.
Its assets consist of three hospitals, 48 nursing homes and one pharmaceutical product distribution and manufacturing facility.
For the first nine months of 2020, the REIT reported an encouraging set of earnings, with gross revenue up 3.6% year on year, while net property income (NPI) grew 3.9% year on year.
Distribution per unit (DPU) rose 3.8% year on year to S$0.1022.
Gearing stood at 38.6% at the end of the quarter, with a high interest coverage ratio of 17 times.
Two weeks ago, the REIT announced the acquisition of a nursing home in Japan for S$21.2 million.
The purchase is expected to generate a net property yield of 6.4% and be yield-accretive for Parkway Life REIT’s portfolio.
The acquisition will be funded by a JPY loan facility at very affordable rates, and the REIT’s gearing will increase slightly to 39.3% after the transaction is completed.
Parkway Life REIT’s unit price has risen almost 14% year to date, outperforming the Straits Times Index’s (SGX: ^STI) 12% fall.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT’s portfolio consists of 18 data centres located across eight countries.
The portfolio was valued at around S$2.9 billion as of 30 September 2020.
The onset of the pandemic has significantly increased the demand for data as more people telecommute and transact online. Global mobile data traffic is predicted to increase by 31% annually from 2019 till 2025.
Keppel DC REIT is enjoying the tailwinds associated with increased spending on the sector, with spending on data centres expected to increase from now till 2023.
Enterprise spending on cloud infrastructure is expected to grow by 22% annually over the next five years and contribute to higher demand for data storage solutions.
For the first nine months of 2020, the REIT reported a 35% year on year jump in revenue and a 37.1% year on year increase in NPI.
DPU rose by 16.5% year on year to S$0.06732.
For the year to date, the REIT’s unit price is up nearly 34%.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, invests in a portfolio of income-generating logistics and industrial real estate assets.
As of 30 September 2020, its portfolio consists of 146 logistics assets located in eight countries in Asia, valued at close to S$9 billion.
The REIT has demonstrated its resilience this year by reporting a 9.4% year on year increase in gross revenue for its fiscal 2021 half-year earnings.
NPI rose 10.4% year on year while DPU inched up by 1.2% year on year to S$0.041.
MLT has been on an aggressive acquisition streak in the last three months.
In late October, the REIT announced a slew of acquisitions in China, Malaysia, Vietnam and Australia to the tune of around S$1.1 billion.
The deal was financed with a combination of debt and equity, with the issuance of new consideration units through both a private placement and a preferential offering.
Hot on the heels of this mega-deal, the REIT announced a A$114 million acquisition of a distribution centre located in Brisbane, Australia around the same time.
And just this week, MLT announced the acquisition of a newly-built freehold logistics facility in Hiroshima, Japan, for around S$82.1 million.
This string of acquisitions is expected to boost the REIT’s DPU for 2021.
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Disclaimer: Royston Yang owns shares in Keppel DC REIT.
