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3 Risky REITs With the Highest Gearing

With the US Federal Reserve increasing interest rates three times last year, the cost of debt has increased substantially. Real estate investment trusts (REITs) typically have high gearing ratios, making them more susceptible to rate changes.

With this in mind, I did a simple screen to find the three most highly-geared REITs in the market now. These REITs could potentially be most affected when they have to refinance their loans.


ESR REIT  (SGX: J91U), formerly known as Cambridge Industrial Trust, has the unwanted distinction of topping this list. The REIT, which recently merged with Viva Industrial Trust, has a debt-to-asset ratio of 42.0%. This is just a whisker away from the 45% regulatory ceiling imposed on REITs in Singapore.

Nevertheless, ESR REIT’s distribution per unit (DPU) was up 18.9% in the first quarter of 2019, due in part to the distribution of capital gains from the disposal of investment properties in prior years. ESR REIT achieved positive rental reversion in the quarter, a reversal from the negative rental reversion in 2018.

At the time of writing, ESR-REIT units exchange hands at S$0.52 apiece. This translates to a price-to-book ratio of 1.11 and a trailing distribution yield of 6.4%.


Far East Hospitality Trust (SGX: Q5T) comes in second on this list with a gearing ratio of 39.9%. The hospitality trust owns nine hotels and four serviced residences, giving it a total portfolio value of S$2.63 billion.

In the three months ended 31 March 2019, the trust posted 8.0% higher revenue but distribution per security (DPS) slipped 3.2%. The higher revenue was due to contribution from Oasia Hotel Downtown but DPS declined due to the enlarged unit base.

Securities of Far East Hospitality Trust trade at S$0.65 apiece, which translates to a price-to-book ratio of 0.75 and a distribution yield of 5.0%.


With an aggregate leverage of 39.3%, Soilbuild Business Space REIT (SGX: SV3U) completes this list. The Singapore-focused REIT owns 11 properties in Singapore and two properties in Australia.

In the first three months of 2019, Soilbuild Business Space REIT’s DPU decreased 9.5% due to the absence of income of one property which was divested last year and lower contributions from three key properties in its portfolio.

Higher property operating expenses and financial expenses were two of the big reasons for DPU slipping. Finance expenses increased by 10.4% during the quarter.

Units of Soilbuild Business Space REIT trade at S$0.61 apiece, giving it a price-to-book ratio of 0.88 and a distribution yield of 7.1%.


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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 doesn't own shares in any companies mentioned.