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3 REITs With The Biggest Financial Flexibility For Growth

With more than 40 real estate investment trusts (REITs) or stapled trusts in the local stock market, choosing the one that is best positioned for growth can be a tough task. However, one key metric that can help investors identify such REITs is the gearing ratio.

The gearing ratio is a ratio comparing the REIT’s debt against its assets. The lower the gearing ratio, the more debt headroom the trust has to make debt-funded acquisitions for growth. With that in mind, here are the three REITs in Singapore that currently have the lowest gearing ratios.

REIT #1

Coming in first is Hong Kong-based Fortune Real Estate Investment Trust (SGX: F25U). The trust, which owns 16 suburban malls in Hong Kong, has a gearing ratio of just 22.3%. The low gearing ratio affords the trust around HK$17.4 billion in debt headroom to fund acquisitions should it see fit.

Impressively, it has also been able to deliver consistent distribution per unit (DPU) growth over the past eight years as illustrated by the chart below.

Source: Fortune REIT 2018 interim presentation

At present, Fortune REIT units trade at HK$9.59 per piece, giving a distribution yield of 5.4% and a price-to-book ratio of just 0.62.

REIT #2

With a gearing ratio of 28.4%, Frasers Commercial Trust (SGX: ND8U) commands the second spot. The trust, which owns two properties in Singapore, one in the United Kingdom and another three in Australia, has around S$357.9 million in debt headroom before it reaches the 45% regulatory cap imposed on REITs.

In the last few quarters, lower occupancies at China Square Central and Alexandra Technopark have resulted in lower net property income. However, if the trust is able to turn the fortunes of its existing portfolio and make use of its financial muscle to make earnings-accretive acquisitions, the future could be a lot brighter.

At the time of writing, units of Frasers Commercial Trust are changing hands at S$1.45 per piece. This translates to a price-to-book ratio of 0.92 and a distribution yield of 6.6%.

REIT #3

Not far behind on the list with a gearing ratio of 28.8% is Frasers Centrepoint Trust (SGX: J69U), another trust that is sponsored and managed by Frasers Property Limited (SGX: TQ5). Frasers Centrepoint Trust specialises in investing in suburban malls in Singapore and counts six shopping malls in its portfolio. 

In the last reporting quarter ended on 31 December 2018, all key metrics improved. Revenue, net property income, and DPU increased by 2.9%, 2.5%, and 0.7% respectively. In addition, rental reversion in its portfolio was positive 6.9%, extending a remarkable run of positive rental reversion that stretches back more than 10 years.

Units of Frasers Centrepoint Trust trade at S$2.27 per piece. At that price, the REIT sports a price-to-book ratio of 1.1 and a distribution yield of 5.3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of Frasers Centrepoint Trust. Motley Fool Singapore contributor Jeremy Chia owns units in Fortune Real Estate Investment Trust.