Investing in REITs is a great idea for income-seeking investors as REITs provide a steady stream of distributions that act as a reliable source of passive income.
However, of late, REITs have been pressured by a combination of surging inflation and high interest rates.
Unsurprisingly, many have reported weaker financial numbers and lower distribution per unit (DPU) as these headwinds take their toll.
The good news is that several REITs have bucked the trend and managed to report a higher year-on-year DPU.
We highlight five such REITs that you may wish to add to your buy watchlist.
Parkway Life REIT (SGX: C2PU)
Parkway Life REIT, or PLife REIT, is a healthcare REIT that owns a diversified portfolio of 61 properties such as hospitals and nursing homes with assets under management (AUM) of around S$2.2 billion as of 31 December 2022.
For its fiscal 2023’s first half (1H 2023), the REIT reported a strong set of earnings.
Gross revenue jumped 23.6% year on year to S$74.4 million while net property income (NPI) improved y 25.1% year on year to S$70.1 million.
DPU rose 3.3% year on year from S$0.0706 to S$0.0729.
PLife REIT has a stellar track record of uninterrupted core DPU growth since 2007.
The better performance came about from higher rent received from the REIT’s Singapore hospitals coupled with additional revenue from acquisitions made last year.
The healthcare REIT also enjoys a very low cost of debt at just 1.19% with an interest coverage ratio (ICR) of 13.8 times.
Its gearing is also relatively modest at 35.3% with no refinancing needs till February 2024.
CapitaLand Ascott Trust (SGX: HMN)
CapitaLand Ascott Trust, or CLAS, is the largest lodging trust in the Asia-Pacific region.
CLAS’ portfolio held 107 properties in 47 cities within 15 countries with an AUM of S$8.1 billion as of 30 June 2023.
For 1H 2023, revenue climbed 30% year on year to S$346.9 million as travel picks up pace with the reopening of borders.
The hospitality trust’s acquisition of 14 properties last year and in the second quarter of 2023 also helped to boost revenue.
As a result, distribution per stapled security (DPSS) shot up 19% year on year to S$0.0278.
Improved flight frequencies brought in more guests, which helped CLAS to improve its revenue per available unit (RevPAU) by 44% year on year.
The manager also has five ongoing asset enhancement initiatives (AEIs) that are slated to lift the value and profitability of its properties.
These AEIs are projected to be completed around 1Q to 2Q of 2024.
With a gearing of 38.6% and a low cost of debt of 2.3%, CLAS looks well-positioned to tap on debt for more yield-accretive acquisitions.
AIMS APAC REIT (SGX: O5RU)
AIMS APAC REIT, or AAREIT, is an industrial REIT with a portfolio of 29 properties of which 26 are in Singapore and three in Australia.
The REIT released a commendable set of earnings for its fiscal 2024’s first quarter (1Q FY2024) ending 30 June 2023.
Revenue rose 4.5% year on year to S$43.2 million with NPI increasing by 4.2% year on year to S$32.3 million.
DPU inched up 1.3% year on year to S$0.0231.
AAREIT also reported strong operating statistics for its portfolio with the occupancy rate coming in at 98.1%.
A positive rental reversion of 38% was registered for the quarter while tenant retention rate stood at 68%.
The industrial REIT’s gearing ratio, at 32.9%, gives it ample room for further acquisitions.
87% of its borrowings are on fixed rates, thus mitigating against a sharp increase in borrowing costs.
Sabana REIT (SGX: M1GU)
Sabana REIT has a portfolio of 18 properties in Singapore with an AUM of more than S$900 million as of 31 December 2022.
For 1H 2023, higher portfolio occupancy rate of 93.9% drove a 23.2% year-on-year jump in gross revenue to S$55.3 million.
NPI, however, edged up just 0.5% year on year to S$27.2 million because of higher operating expenses and utility costs.
DPU was up 1.3% year on year to S$0.0161.
The REIT manager executed 40 new and renewed leases in 1H 2023 with a record positive rental reversion of 20.1% for the period.
Aggregate leverage remained low at 32.5% with an all-in financing cost of 3.89%.
82.2% of the REIT’s loans are on fixed rates.
A major AEI at 1 Tuas Avenue 4 is slated for completion in 1H 2024 and should contribute to revenue post-completion.
CDL Hospitality Trusts (SGX: J85)
CDL Hospitality Trusts, or CDLHT, is a hospitality trust with a portfolio of 19 operational properties and a build-to-rent project in the pipeline with 352 units.
AUM stood at S$3.1 billion as of 30 June 2023.
Like CLAS, CDLHT is also enjoying a strong uplift from the resumption of international travel.
For 1H 2023, revenue jumped 20.9% year on year to S$119.2 million with NPI rising by 23.3% year on year to S$62.9 million.
DPSS climbed 23% year on year to S$0.0251.
Revenue per available room (RevPAR) saw year-on-year increases in all CDLHT’s countries except New Zealand and the Maldives.
The hospitality trust’s gearing stood at 37.9%, giving it a debt headroom of S$715 million before hitting the 50% threshold.
However, CDLHT only has 47.9% of its borrowings on fixed rates and its cost of debt stood at 4.1% as of 30 June 2023.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
