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5 Factors to Pick 3 of Singapore’s Strongest REITs

Not all real estate investment trusts (REITs) are made the same, even though they are designed to be dividend-yielding investments. Some REITs have bigger financial clout, making them stronger compared to their counterparts. Here, let’s explore three REITs which are, in my opinion, considered strong due to their various factors.

Factors under consideration

There are many ways to determine if a REIT is strong, but I’ll pick the main five here:

  1. Sector the REIT is in
  2. Gearing ratio
  3. Interest coverage ratio
  4. All-in cost of debt
  5. Weighted average term to maturity

The sector the REIT is in determines many things. For one, it makes a REIT in a resilient sector less susceptible to economic changes. For example, healthcare REITs are usually shielded from economic shocks since the services provided by the REIT’s tenants are required even during a financial crisis. The gearing ratio, interest coverage ratio, the all-in cost of debt, and the weighted average term to maturity reveal the financial strength of a REIT.

The gearing ratio shows how much leverage the REIT has obtained from its creditors. In Singapore, REITs have a regulatory gearing ceiling of 45%. The interest coverage ratio reveals how easily a REIT can pay its interest expenses. The all-in cost of debt refers to the average interest rate that the REIT has to pay yearly to its creditors. Lastly, the weighted average term to maturity shows the average amount of time, measured in years, until the REIT’s borrowings are due.

REIT #1

The first REIT is Parkway Life REIT (SGX: C2PU), a healthcare REIT that has a portfolio of 50 properties in Singapore, Japan and Malaysia. In our country, Parkway Life REIT owns three hospitals, namely, Gleneagles Hospital, Mount Elizabeth Hospital, and Parkway East Hospital. To know more about the REIT, you can head here.

REIT #2

Keppel DC REIT (SGX: AJBU), the first pure-play data centre REIT in Asia, is the next REIT on the list. The REIT’s portfolio is made up of 15 data centres located in key data centre hubs in the Asia Pacific region and Europe. In a data-driven world, data centres play a critical role in housing all our data securely. For those who are keen to know more about Keppel DC REIT, you can jump in here.

REIT #3

The third REIT I like is IREIT Global (SGX: UD1U), an owner of five freehold commercial buildings in Germany. The country continues to attract businesses that are looking to grow their European presence, which has benefitted the German economy. The long-term prospects of the European nation are also looking great, perhaps why Singapore-listed blue-chip City Developments Limited (SGX: C09) decided to invest in the REIT.

Balance sheet strength of the REITs

The following table shows the gearing ratio, interest coverage ratio, all-in cost of debt, and the weighted average term to maturity of the three REITs.

  Parkway Life REIT Keppel DC REIT IREIT Global
Gearing ratio 36.4% 32.5% 38.0%
Interest coverage ratio 13.2x 12.9x 10.0x
All-in-cost of debt 0.9% 1.7% 1.5%
Weighted average term to maturity 3.3 years 3.3 years 6.8 years

Source: REIT’s quarterly results (as of 31 March 2019)

All the REITs have gearing ratios below 40%, high interest coverage ratios of at least 10 times, low interest costs of below 2%, and weighted average terms to maturity of more than three years. These factors make Parkway Life REIT, Keppel DC REIT, and IREIT Global strong REITs for income investors to consider.

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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 shares of Parkway Life REIT and City Developments Limited. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.