It may have been a tough two years for the REIT sector, but income investors are finally seeing some light at the end of the tunnel.
Inflation has eased considerably since peaking in early 2023 while interest rates look poised to head lower as the US Federal Reserve implemented its first rate cut in four years.
REITs, as a whole, should enjoy some relief after enduring high interest costs.
Investors are also looking forward to more REITs raising their distributions as these headwinds ease.
Meanwhile, we highlight three Singapore REITs that managed to beat the odds.
This trio posted higher year-on-year distributions despite a tough macroeconomic environment.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 23 data centres across 10 countries.
The REIT’s assets under management (AUM) stood at S$3.9 billion as of 30 September 2024.
The data centre REIT released a business update for its third quarter of 2024 (3Q 2024).
Gross revenue rose 8.9% year on year to S$76.9 million, underpinned by rent increases due to strong rental reversions and escalations.
There was also some contribution from Keppel DC REIT’s newly-acquired Tokyo data centre.
Net property income (NPI), however, dipped by 0.2% year on year to S$64.5 million.
Finance income surged by 58.1% year on year to S$4.3 million because of an Australian data centre note.
Because of this note, the REIT eked out a small 0.4% year-on-year increase in distribution per unit (DPU) to S$0.02501.
Portfolio occupancy stayed high at 97.6% and the REIT boasted a long weighted average lease expiry (WALE) of 6.3 years by net lettable area (NLA).
Keppel DC REIT saw strong demand for its properties and booked a positive rental reversion of more than 40% for a major Singapore contract renewal.
This was also the seventh consecutive quarter of positive rental reversion, a testament to the strength of the demand for the REIT’s data centre properties.
Keppel DC REIT’s aggregate leverage stood at 39.7% as of 30 September 2024 along with a cost of debt of 3.3% for the quarter.
71% of its debt is pegged to fixed rates.
Management is confident of continued growth in the data centre market driven by higher demand from cloud service providers who are building their generative artificial intelligence capabilities.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT with a diversified portfolio of 64 properties spread across Singapore (3), Malaysia (1), and Japan (60).
The REIT’s AUM stood at S$2.25 billion as of 30 September 2024.
PLife REIT released its business update for the first nine months of 2024 (9M 2024).
Gross revenue and NPI both fell by 2.2% and 2.1%, respectively, to S$108.5 million and S$102.4 million.
The fall was mainly attributed to the depreciation of the Japanese Yen against the Singapore Dollar.
However, DPU crept up 2.8% year on year to S$0.113 for 9M 2024.
The REIT maintained reasonable gearing of 37.5% and enjoyed a very low cost of debt of just 1.36%.
Around 87% of its interest rate risk is hedged and the REIT has also Japanese Yen net income hedges in place till 1Q 2029.
Subsequent to this business update, PLife REIT announced a major acquisition of 11 nursing homes in France for €111.2 million from DomusVi, a well-regarded aged care operator.
The acquisition is structured as a sale and leaseback with a long lease term of 12 years.
This purchase will result in a DPU accretion of 1.8% for the REIT’s first half of 2024 DPU of S$0.0754, lifting it to S$0.0768.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is an industrial REIT with a portfolio of 56 properties in the US, 83 in Singapore, and one in Japan.
MIT’s total AUM stood at S$8.9 billion as of 30 September 2024.
The REIT released its financial results for the second quarter of fiscal 2025 (2Q FY2025) ending 30 September 2024.
Gross revenue climbed 4.2% year on year to S$181.4 million while NPI rose 4.6% year on year to S$134.5 million.
Borrowing costs increased slightly by 3% year on year to S$27.1 million, resulting in distributable income inching up 1.9% year on year to S$95.8 million.
DPU crept up 1.5% year on year to S$0.0337.
For the first half of fiscal 2025, MIT’s DPU improved by 1.3% year on year to S$0.068.
The REIT’s occupancy level stayed robust at 92.9%, up one percentage point from the previous quarter.
MIT also boasted a well-diversified tenant base of over 2,000 tenants with the largest tenant making up just 6% of the REIT’s gross rental income.
There’s more positive news.
The portfolio’s rental reversions came in at positive 10.7% for renewal leases, demonstrating continued strong demand for the REIT’s properties.
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Disclosure: Royston Yang owns shares of Keppel DC REIT and Mapletree Industrial Trust.
