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Are Singapore REITs Attractive Right Now? Here are 4 Factors You Should Watch Out for

(TSI) OUE downtown
(TSI) OUE downtown

It’s no secret that the REIT sector has been in the doldrums over the past two years.

A combination of high interest rates and surging inflation led to lower distributable income that, in turn, caused distribution per unit (DPU) to come under pressure.

With lingering pessimism surrounding REITs, you may wonder if they are still worth buying.

Can income investors continue to rely on this asset class for reliable dividends?

Here are four aspects of REITs that you need to watch for to determine if they should enter your buy watchlist.

Debt metrics

REITs rely on debt financing for running their operations, acquisitions and asset enhancement initiatives (AEIs).


Remember that a REIT never pays off its debt in full but only services the interest expense on its loans.

When these loans come due, they are then refinanced and rolled over at the prevailing interest rate.

Hence, investors should look out for the REIT’s gearing level, cost of debt and what proportion of its debt is pegged to fixed rates.

Note that the Monetary Authority of Singapore has imposed a maximum gearing of 50% for REITs if they have an interest cover ratio of at least 2.5 times. Otherwise, this maximum will fall to 45%.

And with more loans on fixed rates, the REIT can be shielded against sharp rises in finance costs.

Take Elite UK REIT (SGX: MXNU) as an example.

The UK commercial REIT’s gearing ratio for the first quarter of 2024 (1Q 2024) stood at 41.5%.

Its cost of borrowing was high at 5.2% with just 64% of its loans hedged to fixed rates.

On the other hand, Mapletree Industrial Trust (SGX: ME8U) has an aggregate leverage of 38.7% as of 31 March 2024.

The industrial REIT’s cost of debt was lower than Elite UK REIT at 3.1% while close to 85% of its debt is on fixed rates.

Occupancy rate

The next attribute to watch is a REIT’s occupancy rate.

This rate gives an idea of how well the manager can lease out space within the REIT’s portfolio and is an indication of the demand for the REIT’s properties.

A high occupancy rate implies that a REIT enjoys strong leasing demand which translates to predictable rental income.

Strong demand also leads to positive rental reversions as tenants are more willing to cough up higher rates to occupy these spaces.

CapitaLand Integrated Commercial Trust (SGX: C38U) has a high committed portfolio occupancy of 97% for 1Q 2024 for its portfolio of prime commercial and downtown malls.

Similarly, Frasers Centrepoint Trust (SGX: J69U) also commanded a very high committed occupancy rate of 99.9% for its portfolio of nine suburban malls as of 31 March 2024.

Such high rates assure investors that the REITs’ properties are in high demand and can sustain the current level of rental income.

Rental reversions

Next, investors should look at the rental reversions reported by each REIT.

Rental reversion is defined as the change in rental rates when leases are renewed.

A positive reversion rate implies that the REIT has pricing power and that tenants are willing to accept a higher rental to occupy the space.

Conversely, negative reversion rates may be the result of an oversupply of properties that puts pressure on rental rates.

AIMS APAC REIT (SGX: O5RU) reported a full-year positive rental reversion of 24.3% for its portfolio of industrial properties for fiscal 2024 (FY2024) ending 31 March 2024.

Frasers Logistics & Commercial Trust (SGX: BUOU) also saw healthy positive rental reversion of 14.2% for the three months ending 31 March 2024.

Mapletree Pan Asia Commercial Trust (SGX: N2IU) managed to eke out a positive rental reversion of 2.9% on its overall portfolio for FY2024, but its China, Hong Kong, and Japan properties reported negative rental reversions.

Capital recycling initiatives

Finally, investors should look at the capital recycling initiatives implemented by the REIT manager.

Such moves can help to rejuvenate the portfolio by ridding it of older, low-yielding properties and replacing them with newer, higher-yielding ones.

These initiatives may also include AEIs and acquisitions that help to boost DPU and expand the REIT’s asset base.

For instance, OUE REIT (SGX: TS0U) announced the completion of its S$22 million AEI of Crowne Plaza Changi Airport back in January this year.

The total room inventory has increased to 575 guest rooms and the AEI has also introduced additional function rooms and meeting rooms to cater to growing MICE (meetings, incentives, conventions, and exhibitions) demand.

Mapletree Logistics Trust (SGX: M44U) completed the divestment of nine properties for FY2024, all at a premium to their valuations.

The logistics REIT also completed over S$1.1 billion of 12 modern, Grade A assets in FY2024 which will increase its asset base and provide an uplift to DPU.

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Disclosure: Royston Yang owns shares of Frasers Logistics & Commercial Trust and Mapletree Industrial Trust.

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