The world is facing the prospect of higher interest rates after the US Federal Reserve made its biggest rate hike in 28 years.
The move was in response to soaring inflation in the US that is hitting a four-decade high.
As a result, the REIT sector has also been hit as investors worry over the prospects of higher financing costs.
Many REITs have subsequently hit their 52-week lows.
Income-seeking investors who are looking for bargains can trawl through this list to look for attractive REITs to accumulate for the long term.
A word of warning, though.
Some REITs may end up being value traps, so it’s wise to select those with strong sponsors, high-quality properties, and a good acquisition pipeline.
Here are three REITs that recently hit their 52-week low that deserve a second look.
Daiwa House Logistics Trust (SGX: DHLU)
Daiwa House Logistics Trust, or DHLT, is a logistics-focused REIT with a portfolio of 14 modern logistics properties in Japan valued at S$900 million as of 31 December 2021.
The properties enjoy a high occupancy rate of 98.6% with a portfolio weighted average lease expiry (WALE) of 6.8 years by occupied net lettable area (NLA).
DHLT’s unit price recently hit S$0.65, close to its 52-week low of S$0.64, and is down nearly 19% year to date.
The REIT is anchored by a strong sponsor in Daiwa House Industry Co Ltd (TYO: 1925), one of the largest construction and real estate companies in Japan.
DHLT’s portfolio is around 79% occupied by third-party logistics and e-commerce businesses as a proportion of total NLA, giving the REIT income stability during times of stress.
The logistics REIT recently reported a distribution per unit (DPU) of S$0.0131 for its fiscal 2022’s first quarter (1Q2022), slightly higher than its forecast of S$0.013.
The annualised distribution yield for the REIT now stands at 8.1%.
Investors should, however, be aware of currency risk as the Japanese Yen has depreciated by around 13.5% against the Singapore dollar since the beginning of this year.
The weaker Yen may impact DHLT’s distributions as it earns rental revenue in Japanese Yen but pays out distributions in Singapore dollars.
That said, the REIT has a healthy pipeline of assets from its sponsor, along with a right-of-first-refusal (ROFR).
Based on its potential acquisition pipeline, DHLT’s portfolio could triple in size to 42 properties while gross floor area will nearly quadruple.
Digital Core REIT (SGX: DCRU)
Digital Core REIT, or DCR, is a data centre REIT that owns a portfolio of 10 data centres located in the US and Canada.
The portfolio is valued at US$1.46 billion and enjoys full occupancy with a WALE of 5.5 years.
The REIT’s unit price recently hit a 52-week low of S$0.715, down nearly 39% year to date.
Investors are probably nervous about news that DCR’s fifth-largest customer filing for bankruptcy in April.
This tenant made up 7.1% of the REIT’s annualised rental income as of 31 March 2022.
DCR’s sponsor, Digital Realty Trust (NYSE: DLR), stepped in to guarantee the cash flow to DCR, and this event is not expected to impact DPU.
Digital Realty Trust is a strong sponsor with more than 290 data centres within its portfolio.
For 1Q2022, distributable income was 1.9% higher than forecast at US$12.1 million.
DCR’s leverage remained low at 26% with a low average cost of debt of 2.1%, opening the REIT up to potential acquisitions to build up its portfolio and DPU.
The sponsor has a pipeline of US$15 billion worth of data centres that can be injected into DCR in the future.
Cromwell European REIT (SGX: CWBU)
Cromwell European REIT, or CEREIT, invests in a portfolio of commercial properties located across Europe.
Its portfolio, valued at €2.5 billion, comprises more than 100 predominantly freehold properties in Italy, the Netherlands, Poland, Germany, Finland, Denmark, Slovakia, the Czech Republic, and the UK.
CEREIT’s unit price has declined by 22.5% year to date to hit close to its 52-week low of EUR 1.93.
The REIT reported a respectable set of financial numbers for 1Q2022, with gross revenue rising by 8.5% year on year to €52.6 million.
Distributable income rose 7.1% year on year to €23.3 million.
The portfolio enjoyed a healthy occupancy rate of 94.8% as of 31 March 2022 and saw positive rental reversion of 4.2%.
CEREIT has also been active in capital recycling.
It recently announced the divestment of an office property in Finland for €16.2 million, a 20% premium to its purchase price.
At the same time, the commercial REIT also purchased The Cube, a freehold logistics asset in the UK, for €18.9 million.
The Cube is fully occupied with a lease duration of 10 years and enjoys a net operating income yield of 5.2%.
In a recession…should you buy blue chip companies? Or will REITs be a better investment vehicle? These are questions every investor might ask today. And these are what we’ll be answering in our upcoming webinar “How to make money during a recession”. Come prepared as you migh walk away with insights that could make you even more money than during a bull market. Reserve a FREE seat here!
Disclaimer: Royston Yang owns shares of Digital Core REIT.