It may appear as though REIT investors are walking into a perfect storm.
High inflation and rising interest rates are threatening to reduce distributable income and disrupt the passive income flow that they enjoy.
But if you’re an income-focused investor, there’s no reason to panic.
There are still REITs out there that can not just tackle an environment of higher rates but are also adept at capital recycling to improve both returns and distribution per unit (DPU).
These REITs are also backed by reputable sponsors that can provide financial support if need be while also possessing a healthy pipeline of properties for future acquisitions.
Here are five REITs that should report higher DPU despite the interest rate headwinds.
Mapletree Logistics Trust (SGX: M44U)
Mapletree Logistics Trust, or MLT, is a logistics-focused REIT with a portfolio of 185 properties in eight countries valued at S$13 billion as of 30 June 2022.
MLT has a strong sponsor in Mapletree Investments Pte Ltd and also has a history of rising DPU.
DPU rose from S$0.0686 in fiscal 2013 (FY2013) to S$0.08787 in FY2022.
The momentum has continued into the first quarter of fiscal 2023 (1Q2023) with DPU rising by 5% year on year to S$0.02268.
When it comes to borrowings, MLT has 80% of its total debt hedged or with fixed rates locked in.
A 0.25 percentage point increase in base interest rates will cause a S$0.0001 decline in DPU or around 0.4%.
Frasers Centrepoint Trust (SGX: J69U)
Frasers Centrepoint Trust, or FCT, is a retail REIT that owns nine suburban retail malls in Singapore with assets under management (AUM) of S$6.1 billion.
FCT’s sponsor is real estate conglomerate Frasers Property Limited (SGX: TQ5), or FPL.
The REIT saw DPU inch up 2.3% year on year to S$0.06136 for its fiscal 2022’s first half (1H2022) ended 31 March 2022.
Its 3Q2022 business update saw its retail portfolio occupancy remain high at 97.1% with tenant sales up 23% year on year.
With Singapore’s economy reopening and the relaxation of COVID-19 restrictions, malls should see higher footfall along with increased tenant sales in the months to come.
FCT maintains low aggregate leverage of 33.9% and has close to 70% of its borrowings hedged to fixed rates.
The retail REIT estimates that a 0.5 percentage point increase in base rates will reduce DPU by S$0.0017 per annum or around 1.4% based on annualised 1H2022 DPU.
CapitaLand China Trust (SGX: AU8U)
CapitaLand China Trust, or CLCT, owns a portfolio of 11 retail properties, five business park properties, and four logistics park properties in China with an AUM of RMB 24.8 billion.
The REIT’s sponsor is real estate giant CapitaLand Investment Limited (SGX: 9CI).
1H2022 saw gross revenue and net property income (NPI) rise 9.2% and 12.4% year on year, respectively.
However, CLCT’s DPU dipped from S$0.0423 to S$0.041 due to a retention amount of S$0.0022 to support tenants that were affected by China’s COVID-zero policy.
Positive rental reversion was recorded for its industrial properties and there was a pick-up in shopper traffic and tenant sales in June 2022.
71% of the REIT’s debts are on fixed rates, and a 0.1 percentage point increase in base rates will result in interest expenses increasing by S$0.5 million, or around 0.3% of annualised distributable income.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT with a portfolio of 21 data centres across nine countries with an AUM of S$3.5 billion as of 30 June 2022.
The REIT’s sponsor is Keppel T&T, a wholly-owned subsidiary of blue-chip conglomerate Keppel Corporation Limited (SGX: BN4).
The REIT saw its 1H2022 DPU edge up 2.5% year on year to S$0.05049 despite NPI dipping by 0.5% year on year to S$123.2 million.
Keppel DC REIT also announced the accretive acquisitions of two data centres in Guangdong, China that should boost DPU by 2.7%.
Slightly more than three-quarters of the REIT’s borrowings are on fixed rates, thus mitigating the increase in interest rates.
If base rates rise by one percentage point, the data centre REIT will see an approximate 1.6% decline for its 2Q2022 DPU.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, has a portfolio of 105 properties in Singapore, Australia, the UK, Germany and the Netherlands worth S$6.5 billion.
The REIT enjoys a high occupancy rate of 96.5% as of 30 June 2022 and has a low leverage ratio of 29.2%, allowing it to tap on debt for further acquisitions.
For 1H2022, FLCT reported a slight 1.3% year on year rise in DPU to S$0.0385.
The REIT has locked in close to 81% of its borrowings on fixed rates.
Every 0.5 percentage point increase will decrease DPU by S$0.0005, or around 0.7% of 1H2022’s annualised DPU of S$0.077.
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Disclaimer: Royston Yang owns shares of Keppel DC REIT and Frasers Logistics & Commercial Trust.
