With the threat of a recession rising, investors have flocked to the safe havens of real estate investment trusts (REITs). This has caused the prices of many REITs in Singapore to soar. At current prices, it may be difficult for investors to pick up REITs at reasonable prices.
However, I believe I’ve found two gems in the market that still offer juicy 8% yields.
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Growing at pace
Investors have not really warmed up to Cromwell European Real Estate Investment Trust (SGX: CNNU). The REIT, which went public in November 2017 at €0.55 per unit, has been trading underwater for more than a year. At the time of writing, its units trade at around €0.47 each, which is around 10% below its net tangible asset value per unit.
However, I feel that the market has overlooked this European REIT, which looks set to increase its DPU in the next few years.
It made five acquisitions in July and is expected to complete another one by September this year. Based on proforma calculations, these acquisitions would have increased 2018 distribution per unit (DPU) by 2.3%.
On top of the acquisitions, most of its properties are free-hold and have consumer price index-linked rental escalations, which provide visible rental organic income growth.
In the second quarter of 2019, the REIT’s occupancy increased by 1.4 percentage points, while it reported a 4.8% blended rental reversion rate. Both of which will provide it with higher rental income in subsequent quarters.
Lastly, the REIT has a low cost of debt at just 1.34% per annum and its aggregate leverage of 35.4% is some way below the regulatory ceiling of 45%. As such, Cromwell European REIT is in a great position to capitalise on any investment opportunities should they arise.
With the REIT’s fat distribution yield, its aggressive stance toward growth, and strong financial position, I think the REIT’s risk-reward profile looks enticing.
Riding on China’s growing consumerism
Sasseur Real Estate Investment Trust (SGX: CRPU) looks set to ride on the coattails of the growing Chinese consumer market. The REIT, which owns four outlet malls in China, has an attractive trailing distribution yield of 8.5%.
However, what makes it an even more compelling investment option is that it can easily increase its DPU in the future.
In the first half of 2019, Sasseur’s total tenant sales increased by 19.9%. Given that between 4.5 and 5% of the total tenant sales are paid directly to Sasseur REIT as rental income, the growth in tenant sales will have a direct impact on the REIT’s bottom line, and ultimately, its DPU.
Sasseur REIT’s entrusted managed has also been doing a great job in growing the outlet malls VIP member base who account for more than 50% of the total sales in the malls.
On top of the growth in tenant sales that will drive higher rental income, the REIT is also well-positioned to grow through acquisitions. As of 30 June 2019, its gearing ratio was just 29.7%, one of the lowest among Singapore-listed REITs, giving it the platform to make opportunistic investments to drive DPU growth.
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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 Sasseur Real Estate Investment Trust.