2 Singapore REITs to Watch Out for in July
REITs are excellent investment vehicles for income investors as they pay out dependable dividends at regular intervals.
Over the years, Singapore has built up its reputation as a REIT hub as a myriad of different REITs were listed on the local stock exchange.
Investors can now park their money in REITs with different asset sub-classes such as industrial, healthcare, commercial, and retail.
They can also choose REITs with exposure to different regions such as China, Europe, or the US.
One important criterion for selecting a REIT is its ability to grow its distribution per unit (DPU).
REITs can achieve this through a variety of methods such as positive rental reversion, asset enhancement initiatives (AEIs), rental escalation clauses tied to inflation, or acquisitions.
Some REIT managers are also adept at capital recycling to rid the REIT of older, ageing assets and replace them with newer, higher-yielding properties.
Here are two Singapore REITs to watch for in July that have just announced interesting corporate developments.
ESR-Logos REIT (SGX: J91U)
ESR-Logos REIT, or ELREIT, is an industrial REIT that owns 81 properties in Singapore, Australia and Japan worth S$5 billion as of 31 March 2023.
The REIT was formed by a merger between ESR-REIT and ARA Logos Logistics Trust back in October 2021.
Back in February, the REIT manager announced an equity fundraising exercise to raise a total of S$300 million through a private placement and preferential offer.
The private placement issue price was fixed at S$0.33 per unit while the preferential offer was fixed at S$0.325 per unit.
The amount was raised for ongoing redevelopments and AEIs and to pay down the REIT’s debt and recapitalise its balance sheet.
ELREIT has continued to recycle capital by announcing the divestment of seven non-core assets last week totalling S$337 million.
These disposals include a portfolio of five Singapore properties sold for S$313.5 million, a 5.1% discount to valuation.
The REIT also divested 22 Chin Bee Drive in Singapore at a 6.2% premium to valuation and 51 Musgrave Road in Australia at a 2.4% premium to valuation.
ELREIT’s aggregate leverage is projected to fall from 41.8% to 33.6% after the completion of this raft of transactions.
These divestments also raise the REIT’s debt headroom so that it can replace these older assets with new economy ones.
This move will also improve other operating metrics for ELREIT.
The weighted average lease expiry (WALE) will increase from 3.2 years to 3.3 years while the concentration risk from single-tenant buildings will reduce from 23.3% to 21.7%.
ELREIT’s units have fallen by 16.2% year-to-date and are trading close to their 52-week low of S$0.30.
Lendlease Global Commercial REIT (SGX: JYEU)
Lendlease Global Commercial REIT, or LREIT, is a retail cum office REIT with a portfolio of five properties.
LREIT owns two properties in Singapore, namely Jem and 313 @ Somerset, as well as a freehold interest in Sky Complex which comprises three Grade-A office buildings in Milan.
The REIT reported healthy metrics for its fiscal 2023’s third quarter (3Q FY2023) business update for the period ending 31 March 2023.
Portfolio committed occupancy stood high at 99.8% while WALE by net lettable area came in at 8.3 years.
Moreover, retail rental reversion stood at a positive 3.3% year-to-date while office rental reversion for Sky Complex came in at around 4%.
In an ongoing move to grow its portfolio, LREIT announced the acquisition of a 10% stake in Parkway Parade Partnership Pte Ltd (PPP), which owns an indirect interest in Parkway Parade.
Parkway Parade is an integrated office and retail asset accessible via major expressways and will soon be connected to the MRT network via the soon-to-be-completed Marine Parade MRT station.
This acquisition is DPU-accretive and is projected to increase LREIT’s 1H FY2023 DPU from S$0.0245 to S$0.0247.
Assuming the acquisition was completed at the end of 2022, gearing will increase from 39.2% to 40.4%.
The manager believes that footfall to the mall will greatly improve once the MRT station is completed.
AEIs have also been planned with an MRT linkway providing direct access to the mall along with the introduction of new retail and food and beverage tenants.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
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