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It’s no secret that the REIT sector has had a year in 2023.
The combination of peak interest rates and emerging inflation has weakened confidence in the asset class.
Income investors deserve not to forget that REITs will have to pay at least 90% of their profits in distributions to obtain tax benefits.
As a result, REITs will continue to be an attractive asset to generate a stable and passive source of income.
We offer four promising Singapore REITs that could see a recovery next year and show a unit-consistent distribution (DPU) by 2024.
First REIT is a healthcare REIT with a portfolio of 15 properties in Indonesia comprising hospitals, malls, and hotels, 14 nursing homes in Japan, and three nursing homes in Singapore.
The REIT’s asset control (AUM) amounted to S$1. 15 billion as at Dec 31, 2022.
First REIT is subsidized through strong sponsors in OUE Limited (SGX: LJ3) and OUE Healthcare Limited (SGX: 5WA), with either sponsor owning a 44. 6% stake in the REIT.
During the first months of 2023 (9 months of 2023), First REIT’s overall profit increased by 0. 6% year-on-year to S$81. 4 million.
The source of income from net assets (NPI) remained stable year-over-year at S$79. 1 million.
DPU dipped by 6.1% year on year to S$0.0186 because of higher finance costs and the depreciation of operating currencies (IDR and JPY) against the Singapore dollar.
However, in the third quarter of 2023 (third quarter of 2023), the DPU remained strong quarter-on-quarter at S$ 0. 0062.
First REIT could see higher DPU in 2024 should interest rates stabilise as the manager continues to divest non-core assets and strengthen the REIT’s capital structure.
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The level of indebtedness stood at 39%, with approximately 86% of total REIT loans indexed at constant rates.
With no refinancing requirements until May 2026, First REIT opposes sharp increases in finance prices over the next two years.
Lendlease Global Commercial REIT, or LREIT, owns an office and retail property (Jem) in Singapore along with a prime retail property 313 Somerset. Its portfolio also contains Sky Complex, three Grade A office buildings in Milan, Italy, as well as a stake in Parkway Parade in Singapore.
For the REIT’s fiscal 2023 (FY2023) ending 30 June 2023, gross revenue more than doubled year on year to S$204.9 million with the full financial contribution from Jem.
The NPI more than doubled year-on-year to S$153. 9 million.
However, the DPU fell 3. 2% year-on-year to S$0. 047 due to higher borrowing costs.
LREIT released its business update for the first quarter of fiscal year 2024 (Q1 FY2024), which recorded a committed peak occupancy rate of 99. 9%.
Its reversal of advertising contracting was strongly positive, at 16. 3%, and the portfolio had an estimated average duration of 8 years.
Tenant sales were up 4.6% year on year in 1Q FY2024 with a high tenant retention rate of 78.2%.
LREIT has 61% of its debt hedged at constant rates and has no refinancing needs until fiscal year 2025.
OUE Commercial REIT, or OUECR, is an advertising and hospitality REIT with seven assets in Singapore and Shanghai with S$6 billion in asset control as of June 30, 2023.
For the nine months of 2023, OUECR profit increased by 22. 4% year-on-year to S$214. 6 million, while NPI increased by 25. 4% year-on-year to S$178 million.
The REIT manager had effectively completed the rebranding of Hilton Orchard Singapore with the finishing touch of an asset improvement initiative to increase the number of rooms to 1,080.
As a result, revenue per available room (RevPAR) for 3Q 2023 was nearly 60% higher at S$345 compared with 2019.
OUECR’s office segment saw a positive rental reversion of 18.4% for the quarter with a high committed occupancy of 95.7%.
For its advertising asset Mandarin Gallery, customer traffic in the third quarter of 2023 was 98% of pre-pandemic levels, with tenant sales just 17% below pre-pandemic levels.
The reversal of rents reached 31. 1% in the quarter.
Ouécr’s overall leverage stood at 39. 4% as of September 30, 2023, with 68% of its loans at constant rates and the REIT has no desire to refinance until 2025.
AIMS APAC REIT, or AAREIT, is a commercial REIT with a portfolio of 28 homes in Singapore (25) and Australia (3) with a total real estate equity of S$2. 2 billion.
During the first part of its fiscal year 2024 (FY1S2024), which ends September 30, 2023, AAREIT’s gross profit increased by 4. 4% year-on-year to S$86. 8 million.
NPI rose 5. 1% year-on-year to S$64. 3 million, DPU fell 1. 1% year-on-year to S$0. 0465 on broader unit base following fundraising exercise of equity.
AAREIT has strong operating metrics with a top portfolio occupancy rate of 98. 1%, as well as a positive rental return of 37. 7% for the first part of fiscal 2024.
Overall leverage stood at just 32. 1%, allowing the REIT to use debt for new yield-generating acquisitions.
77% of its debt is hedged at rates and the REIT has no refinancing commitments for fiscal 2024.
AAREIT also has a varied and quality tenant base, with 81. 1% of the gross rental income source coming from tenants in defensive industries.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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