Some real estate investment trusts (REITs) in Singapore’s stock market have been heavily sold down this year. Concerns over interest rate hikes, the US-China trade situation, and volatile emerging market currencies have been some of the main reasons for the steep sell-off.
But, lower prices are actually good news for long-term investors. Depressed prices translate to higher distribution yields, and could represent great buying opportunities.
With that said, here are three REITs on my Christmas wish list.
A healthy REIT
First Real Estate Investment Trust (SGX: AW9U) is a healthcare REIT that owns hospitals and nursing homes, mostly in Indonesia. Last month, the REIT made headlines as its unit price crashed by more than 15% within two trading days.
One of the reasons for the sharp decline was due to the downgrading of the credit rating of Lippo Karawaci, the REIT’s sponsor and main tenant. Market participants were concerned that the lower credit rating may increase the default risk of First REIT’s tenant.
However, in my view, a credit rating downgrade does not necessarily mean that Lippo Karawaci will not be able to meet its short term financial obligations. In fact, I believe that fears of Lippo Karawaci being unable to meet its financial obligations have been overblown.
Right now, at First REIT’s unit price of S$0.97, it has a trailing distribution yield of 8.9%, one of the highest yields in the market and making the REIT an enticing prospect in my view.
Connecting to growth
Keppel DC REIT (SGX: AJBU) owns and manages data centres around the world. So far, 2018 has been a really good year for the REIT. For the first nine months of the year, adjusted distribution per unit (DPU) rose 4.8% year-on-year to 5.47 cents; the third quarter of 2018 even saw DPU growth of 6.3% to 1.85 cents.
The REIT looks poised for more growth. The data centre industry has significant tailwinds that bode well: Increased digitalisation and adoption of cloud computing, and the trend of firms choosing to outsource data centres rather than own them, are key drivers for the growing demand for data centres.
Keppel DC REIT also has a low gearing ratio of just 32.0% as of 30 September 2018, giving it an additional S$278 million in debt headroom to make acquisitions before it hits the regulatory gearing limit of 45%. If the REIT can utilise its financial muscle well, there could be significant DPU growth in the future.
Although Keppel DC REIT’s unit price of S$1.37 right now gives it a yield of just 5.3%, which is not exactly cheap, the possibility of future growth makes the REIT worth looking into.
Sassy growth prospects
Sasseur Real Estate Investment Trust (SGX: CRPU) owns four outlet shopping malls in China. Over its short time frame as a listed entity (the REIT was listed in March this year), Sasseur REIT has delivered stellar financial results, handsomely beating its initial public offering forecasts. The REIT had estimated a DPU of 2.994 cents from its listing till 30 September 2018 in its IPO prospectus; the actual DPU was 4.5% higher at 3.13 cents.
Sassuer REIT’s portfolio of properties also impressed. Total sales at all four malls increased at double digit rates in 2018’s third quarter, with the Kunming and Hefei outlets producing impressive sales growth of 91.1% and 60.3%, respectively. As Sasseur REIT’s agreement with its entrusted manager has a variable rental component that is dependent on tenants’ sales, the trust will be able to benefit directly from sales growth at its malls.
In addition, Sasseur REIT’s portfolio of outlet malls is also less likely to be affected by economic downturns. Outlet malls sell heavily discounted branded goods and demand for these products tends to stay strong even if the economy slows down.
At S$0.66, Sasseur REIT’s unit price gives it an attractive annualised yield of 9.5%. While there are certainly risks associated with investing in REITs with a China focus, Sasseur REIT’s high yield, resilient assets, and propensity for growth should make it a risk worth taking.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia owns shares in First Real Estate Investment Trust. The Motley Fool Singapore has a buy recommendation for First Real Estate Investment Trust.