Higher interest rates look set to stay.
Although inflation came in cooler than expected in the US, investors are concerned that President Trump’s tariff policies could reignite price increases.
Meanwhile, the REIT sector remains in the doldrums as investors continue to shun this asset class.
If you are an income investor, you should choose to stick with REITs that have moderate gearing (<40%) and a large proportion of their debt on fixed rates.
These attributes help the REIT to mitigate the higher-interest-rate environment and can protect its distributions from being eroded.
Here are four REITs with these characteristics that you can contemplate adding to your buy watchlist.
First REIT (SGX: AW9U)
First REIT is a healthcare REIT with a portfolio of 32 properties in Indonesia (15), Singapore (3), and Japan (14) with total assets under management (AUM) of S$1.1 billion.
Its portfolio comprises hospitals, nursing homes, and integrated hospitals/malls along with a hotel and country club.
For 2024, First REIT saw total rental income fall nearly 6% year on year to S$102.2 million, impacted by the weakness of the Indonesian Rupiah and Japanese Yen.
Net property income (NPI) fell 6.5% year on year to S$98.5 million while distribution per unit (DPU) dipped by 4.8% year on year to S$0.0236.
The REIT maintained full occupancy across its portfolio and also boasted a high weighted average lease expiry (WALE) of 10.6 years.
The healthcare REIT’s gearing ratio stood at 39.6% and it has 57% of its loans on fixed rates.
Its interest coverage ratio was also healthy at 3.8 times.
First REIT also has no refinancing requirements until May 2026.
The manager received a non-binding letter of offer (LOI) to acquire First REIT’s portfolio of hospital assets in Indonesia.
The board will undertake a strategic review to consider this LOI and explore all available options for the REIT.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is a data centre REIT with a portfolio of 10 data centres.
Its AUMs stood at US$1.6 billion as of 31 December 2024.
The data centre REIT reported a slightly downbeat set of earnings for 2024 with gross revenue dipping 0.3% year on year to US$102.3 million.
NPI declined 1.9% year on year to US$61.8 million.
DPU slipped 2.7% year on year to US$0.036.
During 2024, DCR signed new and renewal leases representing US$74 million of annualised rental revenue, and helped to extend the REIT’s WALE by two years to 4.8 years.
The REIT also maintained a high portfolio occupancy rate of 97%.
DCR’s aggregate leverage stood at just 34% with 86% of its loans on fixed rates.
The REIT has no debt maturing till 2027 at has a good interest coverage ratio of 3.6 times.
The manager believes that cloud computing, artificial intelligence, and the surge in demand for e-commerce and e-payments should continue to boost data centre demand.
Sabana Industrial REIT (SGX: M1GU)
Sabana REIT is an industrial REIT with a portfolio of 18 properties in Singapore with an AUM of S$1 billion as of 31 December 2024.
Gross revenue for 2024 inched up 1.3% year on year to S$113.3 million.
NPI increased by 4.5% year on year to S$57.5 million while DPU improved by 3.6% year on year to S$0.0286.
The better performance was driven by strong positive rental reversions which have continued for a fourth consecutive year.
Sabana REIT’s portfolio occupancy stood at 85% for 2024, and was a fall from the 91.2% back in 2023.
The REIT saw repossessions for several of its properties in 2024 which led to the lower occupancy.
The good news is that 2024’s portfolio rental reversion stood at 20.6%, an improvement from 2023’s 16.6%.
The REIT’s aggregate leverage also stood at a moderate 37.4%.
Around 73.7% of Sabana REIT’s loans are pegged to fixed rates.
The manager warned of new incoming industrial supply which may put further pressure on occupancy and rental rates.
Business park rents may also be pressured by incoming business park supply in 2025.
Starhill Global REIT (SGX: P40U)
Starhill Global REIT, or SGREIT, is a retail and commercial REIT with a portfolio of nine properties in Singapore, Australia, Malaysia, and China.
These properties were valued at around S$2.8 billion as of 31 December 2024.
SGREIT reported a resilient set of earnings for the first half of fiscal 2025 (1H FY2025) ending 31 December 2024.
Gross revenue edged up 1.7% year on year to S$96.3 million while NPI increased by 1.6% year on year to S$75.6 million.
DPU crept up 1.1% year on year to S$0.018.
SGREIT’s gearing stood at 36.2% with 83% of its loans on fixed rates.
The REIT’s interest coverage ratio was also decent at 2.9 times.
The manager has engaged in asset enhancement works for the REIT’s Wisma Atria Mall.
As part of the ongoing rejuvenation effort, the taxi stand at the mall will be renovated and feature a modern design that will align with the interior upgrading works.
The works will cost S$0.8 million and should be completed by the fourth quarter of fiscal 2025 (i.e. before June 2025).
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Disclosure: Royston Yang owns shares of Digital Core REIT.
