4 Stable REITs to Safeguard against the Bear Markets and High Interest Rates

REITs are a great asset class for receiving dividends as a form of cash flow for investors.

However, in the past two years, REITs have been in a bear market due to the high interest rate environment. In fact, the current share price correction has been going on for about 18 months in duration and the FTSE REIT index has fallen about 22%!

Many investors have flocked to household names like CapitaLand Integrated Commercial Trust (CICT) when we talk about defensive REITs.

That being said, the share price of CICT has fallen 8.70% for the past one year and is down 11.68% for the past 5 years. Hence, it does not mean a REIT with strong sponsor is a good REIT. We also have to consider the macro (online shopping) trends and DPU growth which will also affect the REIT’s share price.

With that, here are the 4 Stable REITs that you may wish to consider to put in your watchlist.

Stable REIT #1 – Mapletree Logistics Trust

Mapletree Logistics Trust (MLT) is Singapore’s first Asia-focused logistics real estate investment trust.

MLT invests in a diversified portfolio of quality, well-located, logistics properties in Singapore, Hong Kong SAR, Japan, China, Australia, South Korea, Malaysia, Vietnam and India.

MLT reported a respectable set of earnings for the first quarter of fiscal 2024 (1Q FY2024). Gross revenue and NPI dipped by 2.9% and 3.1%, respectively while its DPU inched up 0.1% year on year to S$0.02271.

In fact, MLT has consistently increase its DPU for the past 4 years and hence qualify to be one of the 4 defensive REITs.

The logistics REIT also reported a high portfolio occupancy of 97.1% as of 30 June 2023 while chalking up a positive rental reversion of 4.2% for the latest quarter.

82% of its loans are hedged to fixed rates and the REIT just completed the purchase of eight properties in Japan, Australia, and South Korea that should help to boost its DPU going forward.

You can view the REIT website here.

Stable REIT #2 – Parkway Life REIT

Parkway Life REIT, or PLife REIT, is a healthcare REIT with a portfolio of 61 properties comprising three hospitals in Singapore, 57 nursing homes in Japan, and a strata titled lots/units in a specialist clinic in Malaysia.

The healthcare REIT has grown its DPU for the past 4 years. In fact, PLife REIT  has increase its DPU without a pause since its listing in 2007 making one of the best defensive REIT listed in Singapore.

PLife REIT renewed the master lease for its Singapore hospitals last year with a term that lasts till December 2042, giving the REIT great visibility on its rental income stream.

The rent structure factors in inflation to raise the annual rental rate and rental income is projected to jump by nearly 25% year on year from 2026 onwards.

In its first quarter business update, gross revenue increase by 21% to S$37.3 million while DPU increase by 2.5% to 3.65 cents.

PLife REIT’s gearing is reasonable at 37.5% and its cost of debt is very low at 1.19%, allowing the REIT to consider further acquisitions to grow its  portfolio.

You can view the REIT website here.

Stable REIT #3 – Frasers Centrepoint Trust

Frasers Centrepoint Trust (FCT) is a leading REIT with assets under management of approximately S$6.9 billion. FCT is the largest suburban retail mall owners in Singapore.

FCT’s malls are well-connected to the MRT network and transport hubs, making them easily accessible for heartlanders. The retail REIT is also the largest suburban retail space provider in Singapore with a 10.5% share.

For its latest fiscal 2023 third-quarter ended 30 June business update, FCT reported a high occupancy rate of 98.7% with shopper traffic and tenant sales rising by 16% and 5% respectively.

FCT recently announced the divestment of Changi City Point at 4% above valuation. It will reduce its gearing to 37.1% from 40.2% while cost of borrowing will decrease from 3.7% to 3.6%.

This is an excellent move by FCT as Changi City Point has the lowest occupancy rate. The gearing has also been reduced given the high interest rate environment.

FCT’s DPU has been very consistent for the past few years except during the Covid lockdown which is understandable. Given that suburban malls are more resilient in nature couple with its consistent DPU, FCT could qualify as a defensive REIT.

You can view the REIT website here.

Stable REIT #4 – Keppel DC REIT

Keppel DC REIT was listed on the Singapore Exchange on 12 December 2014 as the first pure-play data centre REIT in Asia. Keppel DC REIT invests in a diversified portfolio of data centres to support the digital economy.

In its half year results ended 30 June 2023, Keppel DC REIT reported gross revenue increase by 3.6% to S$140.4M while net property income increase by 3.3% to S$127.3M. Portfolio occupancy is health at 98.5% with long portfolio WALE of 8.0 years.

Gearing is relatively healthy at 36.3% with interest coverage ratio of more than 6.0 times. DPU increase slightly to 5.051 cents. In fact, its DPU has been rising for the past 4 years and together with the rise of AI, it make the cut as one of the defensive REITs.

You can find out more information from the REIT website here

Conclusion

Given the high i/r environment and looming recession, it is imperative to invest in stable REITs that can tide through the tough times now. Hopefully, the four REITs mentioned in this article offer a good starting point for REIT lovers like you.

As with any investment, diversification and a long-term perspective remain key principles for successful investing in REITs or any asset class, helping you build a more resilient and balanced portfolio over time.

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