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4 Singapore REITs with Distribution Yields of 7% or More: Are They a Bargain?

Man Doing Grocery Shopping
Man Doing Grocery Shopping

REITs are a great asset class for income-seeking investors.

The requirement to pay out at least 90% of their earnings as distributions makes them perfect for investors who look for a steady, dependable payout.

The recent surge in interest rates led to an overall rise in distribution yields for the REIT sector.

Investors are justifiably worried about whether REITs can manage higher expenses arising from inflation along with elevated finance costs.

We highlight four REITs with distribution yields of 7% and above to determine if they could be good bargains and be included in your REIT buy watchlist.

Cromwell European REIT (SGX: CWBU)

Cromwell European REIT, or CEREIT, invests in commercial real estate in Europe that also includes light industrial and/or logistics assets.

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Its portfolio comprises 110+ predominantly freehold properties in countries such as Italy, France, Finland, and Denmark and is worth around €2.4 billion.

CEREIT reported a mixed set of results for 2023’s first half (1H 2023).

Gross revenue inched up 0.9% year on year to €108.3 million while net property income (NPI) rose 1.8% year on year to €68.5 million.

Distribution per unit (DPU), though, dipped by 10.4% year on year to €0.0779 because of higher interest costs.

The REIT’s trailing 12-month DPU stood at €0.16284, giving its units a trailing distribution yield of 12.8%.

CEREIT continued to enjoy a high occupancy rate of 95.4% as of 30 June 2023 and reported a positive rental reversion of 5.9%.

The commercial REIT’s portfolio is also well-diversified with 842 tenants with the number one tenant taking up just 8.5% of total rent.

CEREIT’s gearing stood at 38.2% along with an all-in interest rate of 2.85%, opening the REIT to undertaking debt-funded acquisitions.

iREIT Global (SGX: UD1U)

iREIT Global invests in a portfolio of office, retail and industrial assets in Europe.

Its portfolio comprises five office properties each in Germany and Spain, and 27 freehold retail properties in France.

For 1H 2023, gross revenue fell by 5.5% year on year to €28.4 million with NPI decreasing by 10.1% year on year to €22 million.

iREIT Global is retaining an amount for working capital purposes, causing DPU (after accounting for the recent preferential offering) to fall by 23.8% year on year to €0.0093.

Coupled with 2H 2022’s DPU of €0.0128, the trailing 12-month DPU adds up to €0.0221 or around S$0.032.

iREIT Global’s units provide a trailing distribution yield of around 8%.

The REIT enjoyed a low gearing ratio of just 33.1% along with an 88.7% portfolio occupancy.

It also enjoyed a low borrowing cost of just 1.9% with 96.2% of its loans hedged to fixed rates, with no refinancing needs until 2026.

Sasseur REIT (SGX: CRPU)

Sasseur REIT is a retail outlet mall REIT with four mall assets located in Chongqing, Kunming, and Hefei in China.

Sasseur reported a respectable set of financial numbers for 1H 2023.

Total rental income rose 8% year on year to RMB 326 million but distributable income dipped by 2.4% year on year to RMB 43.9 million.

DPU for 1H 2023 slid by 2.6% year on year to S$0.03322.

Together with 2H 2022’s DPU of S$0.0314, Sasseur REIT’s trailing 12-month DPU came up to S$0.06462.

Its units provide a trailing distribution yield of 9.8%.

The outlet mall REIT is enjoying booming sales with total outlet sales jumping 20.5% year on year to RMB 2.3 billion, an all-time high since its listing.

Portfolio occupancy also hit a record high of 97.2%.

Sasseur REIT also has one of the lowest aggregate leverage ratios among Singapore REITs at just 26.2% but its weighted average cost of debt is high at 5.8%.

Approximately 77% of its borrowings are hedged to fixed rates, thereby mitigating the continued increase in finance costs.

United Hampshire US REIT (SGX: ODBU)

United Hampshire US REIT, or UHREIT, is a US-based retail REIT with a portfolio of 21 grocery and necessity properties and two self-storage properties.

The portfolio’s carrying value stood at US$742.7 million as of 30 June 2023.

For 1H 2023, UHREIT reported an encouraging set of earnings with gross revenue climbing 13.3% year on year to US$36 million and NPI rising by 14% year on year to US$25.8 million.

However, the REIT retained around US$1.5 million as a capital reserve for asset enhancement initiatives, causing DPU to fall by 8.9% year on year to US$0.0265.

Together with UHREIT’s 2H 2022 DPU of US$0.0297, the retail REIT’s trailing 12-month DPU stood at US$0.0562, giving its units a trailing distribution yield of 13.1%.

The REIT enjoys a high committed occupancy of 97.9% for its grocery properties along with a high tenant retention rate of 92% since its IPO.

The manager recently announced the divestment of Big Pine Center at a 7.7% premium over the purchase price of US$9.2 million as part of capital recycling.

UHREIT is also constructing a new 63,000-square-foot store with estimated completion in 2024 that will enhance NPI.

Aggregate leverage, however, stands high at 42% with an average cost of debt of 3.57%.

Close to 81% of the REIT’s debt is hedged to fixed interest rates.

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Disclosure: Royston Yang does not own shares in any of the companies mentioned.

The post 4 Singapore REITs with Distribution Yields of 7% or More: Are They a Bargain? appeared first on The Smart Investor.