A sweeping economic recovery is boosting the fortunes of a variety of REITs.
Hospitality REITs are reporting better numbers as countries slowly reopen and travel resumes.
As restrictions ease, many workers are also heading back to the office.
Telecommuting, which was popular in the last two years, should give way to a new normal where companies will employ hybrid work practices.
These include a combination of physical and online meetings to allow flexibility for employees.
Commercial REITs will likely see better retention rates and occupancy levels as businesses reassess their space requirements.
Here are four such REITs that sport a distribution yield of more than 4.8%.
Manulife US REIT (SGX: BTOU)
Manulife US REIT, or MUST, is an office REIT that owns 12 freehold office properties in seven cities in the US.
The portfolio has an aggregate net lettable area of 5.4 million square feet and is valued at US$2.2 billion as of 31 December 2021.
For its fiscal 2021 (FY2021), gross revenue fell by 4.7% year on year to US$185.1 million while net property income (NPI) declined by 5.4% year on year to US$109.5 million.
NPI declined due to rental abatements provided in the first half of 2021 (1H2021) as well as lower car park and rental income.
Distribution per unit (DPU) for FY2021 dipped by 5.5% year on year to US$0.0533.
At MUST’s last traded unit price of US$0.645, its units provided a historical distribution yield of 8.3%.
Despite the fall in NPI and DPU, MUST’s portfolio occupancy remained high at 92.3%.
The REIT’s gearing stood at 42.8% as of 31 December with the cost of debt at 2.82%.
MUST had just acquired three properties in FY2021 for a 2.8% accretion to DPU, and reports signs of improvement in 2H2021 with higher net effective rent of US$39.26.
CapitaLand Integrated Commercial Trust (SGX: C38U)
CapitaLand Integrated Commercial Trust, or CICT, invests in both commercial and retail assets in Singapore and Germany.
Its portfolio comprises 21 properties in Singapore and two in Frankfurt, Germany. Total assets under management stood at S$22.5 billion as of 31 December 2021.
Gross revenue surged by 75% year on year to S$1.3 billion while NPI soared by 85.5% year on year to S$951 million.
The stronger showing was due to the merger between CapitaLand Mall Trust and CapitaLand Commercial Trust in 2020.
DPU increased by 19.7% year on year to S$0.104.
The trailing distribution yield stood at 4.9%.
CICT’s committed portfolio occupancy stood healthy at 93.9%, with tenant sales for its retail component up by 12.2% year on year.
The REIT’s latest 51-storey integrated development, CapitaSpring, saw 93% of its workspace and the net lettable area being committed as of February 2022.
Elite Commercial REIT (SGX: MXNU)
Elite Commercial REIT is a UK-focused REIT with a portfolio of 155 commercial buildings worth around £500.1 million.
Its portfolio is primarily occupied by the Department for Work and Pensions (DWP), the UK’s largest public service department.
For FY2021, Elite reported revenue of £34.7 million and a DPU of £0.0543.
Elite’s units provided a distribution yield of 8.5% at its last traded unit price of £0.64.
The REIT’s gearing ratio stood at 42.4% with a low borrowing cost of 2% and interest coverage of six times.
The portfolio enjoyed full occupancy as of 31 December 2021.
Elite’s leases have built-in rental escalation clauses that kick in from April 2023, providing organic growth for its rental income.
The REIT recently removed lease break options on 100 of its properties that affect around 47% of the REIT’s gross rental income.
This move provides more certainty to investors that DWP will not exercise the option to terminate its lease before it is due for renewal in March 2028.
Prime US REIT (SGX: OXMU)
Prime US REIT owns a high-quality portfolio of 14 Class A freehold office properties in the US.
The portfolio is valued at US$1.65 billion as of 31 December 2021.
For FY2021, NPI inched up by 6% year on year to US$100.7 million.
DPU, however, declined slightly by 2.3% year on year to US$0.0678.
Prime US REIT’s units offer a trailing distribution yield of 8.9%.
The commercial REIT has aggregate leverage of 33.5% with an effective interest rate of 2.7%.
For the fourth quarter of FY2021, the REIT enjoyed a positive rental reversion of 7.8%.
The REIT manager foresees job growth in 2022 and increased consumer activity which will benefit the REIT’s prospects this year.
Get Smart: Passive income for life
A high distribution yield has its merits.
However, at The Smart Dividend Portfolio, we prefer sustainable yields to high yields.
That’s because we believe that investors should attempt to build a portfolio that can pay you for life.
As such, we think that you should think beyond the headline yield and consider whether the REIT can sustain its distribution yields.
Do these REITs have a portfolio of great assets that can attract strong tenants and generate valuable rental income for the trust?
In essence, these will be the questions we will be asking, and you should too.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
