It has been a painful period for highly-indebted companies as interest rates have risen at their quickest pace ever.
The REIT sector has not been spared, either.
With REITs being an asset class that is highly reliant on bank borrowings, the surge in interest rates will understandably raise finance costs and result in lower levels of distributable income.
As a result, distribution per unit (DPU) will be under pressure.
That said, well-managed REITs can employ a variety of methods to mitigate the downside.
One important financial metric is the gearing ratio, which determines how much debt the REIT has taken up in relation to its asset base.
The other is to assess the proportion of its debt that is on fixed rates.
We highlight five Singapore REITs that are in a good position to weather these higher interest rates.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust, or FLCT, has a portfolio of 105 properties across Germany, the UK, Singapore, Australia, and the Netherlands valued at S$6.7 billion as of 31 December 2022.
The REIT’s aggregate leverage stood at just 27.9% with a very low cost of borrowings of 1.7%.
Its interest coverage ratio (ICR) also stood at a high of 13.6 times.
FLCT has a debt headroom of S$3.1 billion that it can tap into to undertake yield-accretive acquisitions.
What’s more, 78.7% of the REIT’s borrowings are on fixed rates.
The REIT’s portfolio also enjoyed a high occupancy rate of 95.9% with a positive rental reversion of 11%.
Its largest tenant, the Commonwealth Bank of Australia (ASX: CBA), took up just 5% of gross rental income (GRI).
Sasseur REIT (SGX: CRPU)
Sasseur REIT is a Chinese outlet retail mall REIT with a portfolio of four retail mall assets located in Chongqing, Kunming and Hefei.
The retail REIT posted a downbeat set of earnings for 2022 as the variable component of its rental income slid by 15.7% year on year.
Total rental revenue dipped by 2.8% year on year to RMB 594.7 million.
Distributable income fell by 5.8% year on year to RMB 88.5 million with DPU slipping 7.8% year on year to S$0.0655.
The good news is that gearing stood at just 27.6% as of 31 December 2022 with ICR at 4.4 times.
The REIT retains a decent debt headroom of S$791 million and also enjoys a high occupancy rate of 97.2%.
iREIT Global (SGX: UD1U)
iREIT Global’s portfolio comprises five freehold commercial properties in Germany, five in Spain, and 27 freehold retail properties in France.
The REIT reported an 18.2% year on year jump in gross revenue to €61.7 million for 2022 due to a full-year recognition from acquisitions.
Net property income (NPI) rose 14.9% year on year to €48.8 million but DPU fell by 8.2% year on year to €0.0269 because of an enlarged base of units.
iREIT Global is in a good position to weather higher interest rates with a gearing ratio of just 32%.
It also enjoys a decent occupancy of 88.3% and recorded a positive rental reversion of 2.8% from step-up rents that are indexed to the inflation rate.
The REIT maintains a low cost of debt at 1.8% with almost all of its loans hedged to fixed rates.
It also has no refinancing requirements until 2026, thus preventing a steep rise in its interest cost.
Paragon REIT (SGX: SK6U)
Paragon REIT was formerly known as “SPH REIT” and owns a portfolio of five retail properties in Singapore and Australia.
The REIT reported a stable performance for the four months ended 31 December 2022 (4M 2022) as SPH REIT used to be an August 31 fiscal year-end.
Gross revenue for 4M 2022 inched up 2.1% year on year to S$94.6 million while NPI crept up 2.6% year on year to S$70.2 million.
DPU remained flat year on year at S$0.0172.
Gearing stood low at 29.8% with an average cost of debt of 2.05% for the 16 months ended 31 December 2022.
84% of the REIT’s debt is on fixed rates and it enjoyed a healthy ICR of 6.8 times.
Far East Hospitality Trust (SGX: Q5T)
Far East Hospitality Trust, or FEHT, is a hospitality trust with 12 properties totalling 3,015 hotel rooms and serviced residence units.
The portfolio was valued at S$2.45 billion as of 31 December 2022.
FEHT reported a 24.3% year on year jump in distribution per stapled security (DPSS) to S$0.0327 as the trust enjoyed higher NPI with the reopening of borders.
Aggregate leverage came in at just 32% with a low average cost of debt of 2.2%.
Around 54.1% of FEHT’s debt is on fixed rates and the ICR stood at 3.8 times.
Not sure which REIT to put your money in? Use our 7-step REIT checklist to find one that fits into your retirement plan. Checklist is inside our latest FREE report “Singapore REITs Retirement Plan”. Click here to download it now.
Disclosure: Royston Yang owns shares of Frasers Logistics & Commercial Trust.