The REIT sector is facing the prospects of “higher for longer” interest rates as the US Federal Reserve kept rates at a 23-year high during its recent meeting.
Hence, REIT managers have to deal with higher finance costs while grappling with increased expenses arising from inflation.
Income investors are justifiably worried about whether distributions are under pressure.
Despite these headwinds, several REITs have defied the odds and posted a higher distribution per unit (DPU).
We single out three of them that income investors may wish to add to their buy watchlists.
Mapletree Pan Asia Commercial Trust (SGX: N2IU)
Mapletree Pan Asia Commercial Trust, or MPACT, has a portfolio of 18 commercial properties across five cities in Asia – Singapore (5), Hong Kong (1), China (2), Japan (9), and South Korea (1).
These properties have a total lettable area of 11.2 million square feet and the portfolio’s assets under management (AUM) stood at S$16.5 billion as of 31 March 2024.
For the fourth quarter of fiscal 2024 (4Q FY2024), gross revenue rose 2.6% year on year to S$239.2 million, led by strong performances from the REIT’s Singapore assets and stable contribution from Festival Walk mall.
Net property income (NPI) increased by 3.2% year on year to S$183.1 million despite utility expenses rising 9.8% year on year.
Although finance costs increased by 10.8% year on year to S$56.4 million, distributable income eked out a small 2.5% year-on-year gain to S$120.5 million.
DPU for 4Q FY2024 inched up 1.8% year on year to S$0.0229.
MPACT’s portfolio committed occupancy stayed high at 96.1% as of 31 March 2024.
The commercial REIT’s aggregate leverage stood at 40.5% with 77.1% of its debt on fixed rates.
The weighted average cost of debt came in at 3.35%, up sharply from 2.68% a year ago but stable against the 3.33% reported in the previous quarter.
The portfolio also remained resilient with a positive rental reversion of 2.9% along with a tenant retention rate of 72.5%.
Both of MPACT’s key malls, VivoCity and Festival Walk, enjoyed higher footfall and tenant sales for FY2024.
VivoCity saw tenant sales and shopper traffic rise 2.6% and 10.1% year on year, respectively.
Festival Walk’s tenant sales edged up 0.1% year on year while shopper traffic improved by 0.6% year on year.
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.
Its total AUM stood at S$8.9 billion as of 31 March 2024.
Like MPACT, MIT also pulled off an admirable performance for 4Q FY2024.
Gross revenue rose 4.4% year on year to S$178.7 million, buoyed by higher contributions from the data centre acquired in Osaka and higher rental income from Mapletree Hi-Tech Park @ Kallang Way.
The industrial REIT also enjoyed higher rental income from new and renewal leases across different property clusters.
NPI inched up 2.2% year on year to S$131.8 million while DPU crept up 0.9% year on year to S$0.0336.
MIT’s gearing stood at 38.7% as of 31 March 2024 with close to 85% of its loans pegged to fixed rates.
Its cost of debt has stayed constant quarter-on-quarter at 3.1%.
Occupancy stood high at 91.4% and the REIT recorded positive rental reversions of 6.6% for renewal leases across its portfolio.
MIT had just completed Phase 2 of the fit-out works for its Osaka Data Centre and the manager also announced the divestment of Tanglin Halt Cluster at a premium to its valuation.
Proceeds from the divestment will be used to reduce debt or make distributions to unitholders.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT with a portfolio of 63 properties valued at S$2.23 billion.
Its portfolio comprises three hospitals in Singapore, 59 nursing homes in Japan, and strata-titled lots/units in a specialist centre in Kuala Lumpur, Malaysia.
PLife REIT released a mixed set of results for its business update for the first quarter of 2024 (1Q 2024).
Gross revenue dipped by 2.7% year on year to S$36.3 million because of the depreciation of the Japanese Yen against the Singapore Dollar.
NPI correspondingly fell by 2.8% year on year to S$34.3 million.
DPU, however, managed to grow by 4% year on year to S$0.0379.
The healthcare REIT had a moderate gearing of 36.4% with a very low cost of debt of just 1.3%.
About 91% of its loans are hedged to fixed rates, thus mitigating a sharp rise in finance costs.
The REIT manager plans to tap into its strong network in Japan to grow further while establishing a third key market to enhance PLife REIT’s growth prospects for the mid to long term.
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Disclosure: Royston Yang owns shares of Mapletree Industrial Trust.
