Several important factors determine if a REIT can grow in the long-term.
These attributes are what separates the stronger REITs from their weaker counterparts.
One of these is the sub-sector that the REITs properties are in.
For instance, the pandemic has badly impacted the hospitality sector, resulting in a poor cash flow outlook for many of the hospitality REITs.
In contrast, resilient sub-sectors including industrial, essential retail and healthcare were less affected.
Buying a REIT with properties in these sectors ensures that its rental income remains protected during crises.
Another positive factor is low gearing levels.
The Monetary Authority of Singapore had raised the gearing limit for REITs from 45% to 50% last year as one of the measures to deal with the pandemic.
This move provides more leeway for REITs to borrow to acquire and grow their asset base.
With global interest rates at multi-year lows, opportunistic REITs can pounce on quality assets without incurring crippling finance costs, a classic win-win situation.
Here are five REITs that have room for further growth in 2021 and beyond.
United Hampshire US REIT (SGX: ODBU)
United Hampshire US REIT invests in a portfolio of retail properties that are grocery-anchored and necessity-based.
The REIT’s portfolio consists of 22 freehold grocery and necessity, and self-storage properties located in the US.
Throughout the pandemic, all of the REIT’s tenants remained open for business, and occupancy rate remained high at 95% as of 30 September 2020 with a long weighted average lease expiry (WALE) of 8.4 years.
Gearing ratio remained conservative at 36.2% with an average interest rate of 2.84%, providing the REIT with ample room to gear up further for acquisitions if need be.
The REIT’s anchor tenants such as Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW) continue to report strong year on year sales growth, affirming the resilience of the REIT’s properties during these challenging times.
Keppel DC REIT (SGX: AJBU)
Keppel DC REIT is a data centre REIT that owns 18 assets across eight countries valued at around S$2.9 billion as of 30 September 2020.
Due to an explosion in data usage, the REIT has seen strong leasing momentum and enjoys high portfolio occupancy of 96.7%.
For the first nine months of 2020, distributable income rose 41.2% year on year while distribution per unit (DPU) climbed 16.5% year on year to S$0.06732.
The REIT maintains a low gearing level of 35.2% with a cost of debt of just 1.6%, and this leaves room for the REIT to gear up to acquire more data centres.
Recently, Keppel DC REIT announced that it had quadrupled the limit for its multicurrency medium-term note programme from S$500 million to S$2 billion.
This move may imply that the REIT is preparing to increase its leverage to cater for acquisitions.
Lendlease Global Commercial REIT (SGX: JYEU)
Lendlease Global Commercial REIT invests in income-producing properties used for retail and office purposes.
Its initial portfolio comprises 313@Somerset, a retail property in Singapore, and Sky Complex, which consists of three office buildings in Milan, Italy.
In its fiscal 2021 first-quarter business update, the REIT reported high occupancy of 99% along with a long WALE of 4.9 years by gross rental income.
Gearing stood at just 35.6% with a very low cost of debt of just 0.86% per annum.
The REIT had just taken up a strategic stake in Jem mall in Singapore through a 5% interest in Lendlease Asian Retail Investment Fund 3 recently.
Early this year, the REIT manager announced the establishment of a S$1 billion multicurrency debt issuance programme, ostensibly to prepare the REIT to gear up for potential acquisitions.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT is Asia’s largest listed healthcare REIT by assets.
It owns a portfolio of 53 properties worth around S$1.96 billion comprising three hospitals in Singapore, 48 nursing homes in Japan, and one pharmaceutical manufacturing and distribution facility.
The REIT continues to report healthy numbers despite the pandemic, with gross revenue for the first nine months of 2020 increasing 3.6% year on year. DPU rose 3.8% year on year to S$0.1022.
Gearing stands at 38.6% with an all-in cost of debt of just 0.54%, allowing the REIT to gear up further to acquire at a very low cost.
In early December, the REIT acquired another nursing home in Japan for S$21.2 million, adding another yield-accretive and resilient asset to its growing portfolio.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, invests in a portfolio of 100 industrial and commercial properties located in five countries: Singapore, Australia, Germany, the UK and the Netherlands.
The REIT has maintained high occupancy at 97.5% as of its 30 September 2020 (also its fiscal year-end).
Revenue for the fiscal year grew 53% year on year while DPU inched up 1.7% year on year.
The REIT’s aggregate leverage stood at 37.4% with a weighted average cost of debt at 1.9%.
The REIT manager continues to proactively manage the REIT’s portfolio.
Just last month, FLCT divested three Australian leasehold properties for $29.6 million, a 19.4% premium to the properties’ book value.
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Disclaimer: Royston Yang owns shares in Keppel DC REIT and Frasers Logistics & Commercial Trust.