The REIT sector is facing pressure from the twin challenges of high inflation and surging interest rates.
These headwinds have caused investors to feel pessimistic about this asset class as operating and finance costs look set to increase.
Income investors are naturally worried about declining distribution per unit (DPU) in such an environment.
Because of the bearish sentiment, the unit prices of many REITs have fallen to their 52-week lows.
However, investors may be throwing out the baby with the bathwater.
With REITs being sold down as an asset class, bargains could be emerging that can provide investors with attractive returns over the long term.
We highlight four Singapore REITs that recently touched a year-low and try to determine if they could be ripe for buying.
ESR-Logos REIT (SGX: J91U)
ESR-Logos REIT is an industrial REIT with a portfolio of 81 properties spread across Singapore (60), Australia (20), and Japan (1).
The REIT’s assets under management stood at S$4.9 billion as of 30 June 2023.
ESR-Logos REIT’s unit price has declined by 16.2% year-to-date (YTD) and has hit its 52-week low of S$0.30 recently.
The REIT recently announced its fiscal 2023 first half (1H 2023) results ending 30 June 2023.
Gross revenue climbed 33.3% year on year to S$196.8 million while net property income (NPI) improved by 37% year on year to S$140.8 million.
However, DPU fell by 5.6% year on year to S$0.01378 because of a 46.1% year-on-year increase in the number of issued units.
The REIT maintained a high portfolio occupancy rate of 92.9% while reporting a positive rental reversion of 11.6% for 1H 2023.
ESR-Logos REIT also announced divestments of seven non-core assets worth S$337 million back in June 2023, helping to lower its gearing to 33.6% post-divestment.
Around three-quarters of its total debt is hedged to fixed rates and the REIT has refinanced all its debt for 2023.
Investors should also note that the REIT is backed by a strong sponsor in Hong Kong-listed ESR Group Ltd (HKSE: 1821).
Lendlease Global Commercial REIT (SGX: JYEU)
Lendlease Global Commercial REIT, or LREIT, is a retail and commercial REIT that owns Jem and 313 Somerset in Singapore and a freehold interest in Sky Complex in Milan, Italy.
The portfolio had a value of S$3.65 billion as of 30 June 2023.
LREIT’s unit price has slid 18.3% YTD, hitting a 52-week low of S$0.58.
The REIT released its fiscal 2023 (FY2023) results ending 30 June 2023.
Gross revenue more than doubled year on year from S$101.7 million to S$204.9 million because of the acquisition of Jem during FY2023.
NPI leapt 103.9% year on year to S$153.9 million.
However, DPU dipped by 3.2% year on year to S$0.047.
Despite the decline, both LREIT’s retail and office divisions saw positive rental reversions of 4.8% and 5.9%, respectively.
Investors should also take comfort in the REIT’s occupancy hitting close to 100%.
LREIT’s latest gearing ratio stood at 40.6% with a weighted average cost of debt of 2.69%.
Around 61% of the REIT’s borrowings are hedged to fixed rates and it has no refinancing risk for FY2024.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, is a European commercial REIT with a portfolio of more than 110 properties in countries such as the Netherlands, Italy, France, Poland, and Germany.
Its AUM stood at €2.4 billion as of 30 June 2023.
CEREIT’s unit price has fallen by 5.3% YTD, touching a 52-week low of €1.42 recently.
1H 2023’s results saw gross revenue inch up 0.9% year on year to €108.3 million.
NPI edged up 1.8% year on year to €68.5 million but DPU fell by 10.4% year on year to €0.0779.
The REIT’s occupancy rate remained high at 95.4% and it also logged a positive rental reversion of 5.9%.
CEREIT’s portfolio has 842 tenants with 1,058 leases with the top 10 tenants making up 28.2% of gross rental income.
Aggregate leverage stood at 41.5% with an all-in interest rate of 2.85% as of 30 June 2023, and is slated to fall to 39.5% as of 31 July 2023 from the proceeds of a divestment.
CEREIT had conducted €135 million of divestments since the beginning of 2022 and is slated to reach €200 million by the end of 2023 as part of its capital recycling program.
Keppel Pacific Oak US REIT (SGX: CMOU)
Keppel Pacific Oak US REIT, or KORE, is a US office REIT with 13 freehold office buildings and business campuses across eight markets in the US.
The REIT has a total asset value of US$1.42 billion as of 31 December 2022.
KORE’s unit price has tumbled 45.5% YTD to its 52-week low of US$0.24 in line with the weak fundamentals in the US office market.
For 1H 2023, gross revenue increased 2.4% year on year to S$75.9 million while NPI improved by 2% year on year to S$43.9 million.
DPU fell 17.2% year on year to US$0.025.
The good news is that KORE does not have any refinancing obligations till 4Q 2024.
Its aggregate leverage stood at 38.4% with an all-in average cost of debt of 3.99%.
In-place rents are around 1.6% below asking rents, giving KORE room for organic rental growth.
The REIT has also built-in rental escalations of around 2.5% across its portfolio.
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.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
