REITs are great investment vehicles for delivering a stream of passive income.
The requirement to pay out at least 90% of their earnings as a distribution to qualify for tax incentives makes them perfect for income-inclined investors.
We are lucky that Singapore has developed a vibrant hub for REITs, allowing you to select from a wide variety to invest in.
As with any investment, it’s important to not just look for good dividend yields, but to assess the prospects and risks for any REIT investment you make.
Several REITs are sporting high dividend yields but does this fact make them good to invest in?
We dig into four such Singapore-listed REITs to determine this.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT, or UHREIT, invests in a portfolio of grocery-anchored and necessity-based retail properties in the US.
UHREIT’s portfolio comprises 21 predominantly freehold retail properties and two self-storage properties valued at around US$733 million as of 30 June 2022.
For the first half of 2022 (1H2022), the retail REIT reported an 18.5% year on year increase in gross revenue to US$31.8 million.
Net property income (NPI) rose 10.6% year on year to US$22.6 million.
Distribution per unit (DPU) dipped by 4.6% year on year to US$0.0291. However, excluding top-ups and stipulated damages in 1H2021’s DPU, then DPU would have risen by 13.4% year on year.
Together with 2H2021’s DPU of S$0.0305, trailing 12-month DPU stands at S$0.0593, giving the REIT’s units a trailing distribution yield of 9.6%.
UHREIT remains resilient to downturns as two-thirds of its base rental income comes from tenants providing essential services.
The REIT had just concluded its third DPU-accretive acquisition of Upland Square last month and enjoys high occupancy of 96.2% as of 30 June 2022.
Elite Commercial REIT (SGX: MXNU)
Elite Commercial REIT owns a portfolio of 155 predominantly freehold commercial buildings across the UK valued at £517.7 million as of 30 June 2022.
1H2022 saw revenue rise by 17.7% year on year to £18.7 million with distributable income improving by 9.7% year on year to £12.2 million.
DPU, however, dipped by 2.7% year on year to £0.0256.
Elite’s trailing 12-month DPU stood at £0.0536, giving its units a trailing distribution yield of 8.9%.
The majority of the commercial REIT’s properties have inflation-linked escalation clauses built into their tenancy agreements, and will provide potential rental income uplift when rental rates adjust in 2023.
Meanwhile, 63% of the REIT’s borrowings are on fixed rates, thus mitigating against a sharp rise in borrowing costs.
Gearing ratio stood at 41.9% for Elite with a low cost of debt of just 2.3%.
Manulife US REIT (SGX: BTOU)
Manulife US REIT, or MUST, invests in a portfolio of US office assets.
Its portfolio consists of 12 freehold office properties in US states such as Arizona, California, Oregon, and Virginia, and is valued at US$2.2 billion as of 31 December 2021.
1H2022 saw MUST’s gross revenue rise 10.6% year on year to US$100.4 million.
NPI inched up 2.8% year on year to US$57.6 million but DPU, on the other hand, fell by 3.3% year on year to US$0.0261.
2H2021’s DPU came in at US$0.0263, so totalling the two halves gives MUST a trailing 12-month DPU of US$0.0524.
The commercial REIT’s units offer a trailing distribution yield of 9.5%.
MUST’s portfolio occupancy stood at a healthy 90% as of 30 June 2022.
However, a point of concern is the low physical occupancy which came in at just 28% as most people are still working from home.
Gearing stood fairly high at 42.4% with a weighted average cost of borrowing of 2.97%.
85.7% of the REIT’s loans are on fixed rates, and every 1% increase in interest rates will reduce DPU by S$0.00079.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, has a portfolio of more than 110 predominantly freehold properties located in cities across the Netherlands, Italy, France, and Finland, to name a few.
These properties were valued at €2.6 billion as of 30 June 2022 with net lettable area of 1.9 million square metres.
CEREIT put up a respectable performance for 1H2022, with gross revenue rising 8.5% year on year to €107.4 million and NPI climbing 4.7% year on year to €67.3 million.
DPU inched up 2.3% year on year to €0.08695.
Coupled with 2H2021’s DPU of €0.08459, trailing 12-month DPU came in at €0.17154.
CEREIT’s units offer a trailing distribution yield of 8.1%.
The REIT reported record-high occupancy of 95.4% and enjoyed positive rent reversion of 2.9% across the portfolio for 1H2022.
Aggregate leverage stood at 38.6% as of 30 June 2022, with a low all-in interest rate of 1.72%.
CEREIT is aiming to refinance around €180 million of debt due this year and the next by 2H2022.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.