5 REITs That Remain Unaffected by the Return to Phase 2

An earlier version of this article appeared in The Smart Investor website.

It’s official: Singapore is tightening its COVID-19 measures once again..

The new rules bring us closer to the movement restrictions implemented during Singapore’s circuit breaker from April to June last year.

Fortunately, businesses are better prepared now and many have established an online presence after the last lockdown.

We are not in the clear, though.

Dining in is disallowed while work from home is now the default.

And with malls facing reduced capacity limits and commercial tenants still evaluating their space requirements, certain REITs will, no doubt, face some negative impact from the latest measures.

Despite the challenges, there is a crop of REITs that remains relatively insulated.

Here are five that are expected to remain resilient despite the tightened measures.

Keppel DC REIT (SGX: AJBU)

Keppel DC REIT has a portfolio of 19 data centres that span eight countries with total assets under management of S$3 billion.

The REIT continues to deliver healthy financial performance, with its fiscal 2021 first quarter (1Q2021) showing healthy growth.

Gross revenue increased by 10.6% year on year to S$66.7 million while distribution per unit (DPU) jumped by 18.1% year on year to S$0.02462.

The REIT’s aggregate leverage stands at 37.2% as of 31 March 2021 with a low average cost of debt of just 1.5% per annum.

Data centre demand is expected to remain resilient as the global colocation market is poised to grow by 16% in 2021.

For context, over 71% of Keppel DC REIT’s March 2021 rental income comes from colocation.

Global internet traffic surged by 47% year on year last year, while 5G subscriptions are anticipated to make up 54% of total mobile data plans, thereby sustaining strong demand for data storage.

Parkway Life REIT (SGX: C2PU)

Parkway Life REIT is one of the largest healthcare REITs in Asia with a portfolio valued at close to S$2 billion.

The REIT’s portfolio comprises 53 properties, of which three are hospitals in Singapore, 49 are nursing homes in Japan and one belongs to strata-titled units in a specialist clinic in Malaysia.

Properties within the REIT are expected to continue operations even if the pandemic worsens as healthcare is an essential pillar of the economy.

The REIT also posted an encouraging set of results for 1Q2021.

Gross revenue inched up 0.4% year on year to S$30 million and DPU climbed by 7.4% year on year to S$0.0357.

Parkway Life REIT posted uninterrupted DPU growth (excluding one-off divestment gains) since its IPO in 2006, and we expect this trend to continue in the years ahead.

Frasers Logistics & Commercial Trust (SGX: BUOU)

Industrial REITs that have strong sponsors are more likely to get through this tough period unscathed.

One of these is Frasers Logistics & Commercial Trust, or FLCT.

The REIT has a portfolio of 97 industrial and commercial properties worth around S$6.3 billion as of 31 March 2021. Frasers Property Limited (SGX: TQ5) acts as its sponsor.

FLCT boasts a high-quality tenant base with the likes of Techtronic Industries (HKSE: 0669) and the Commonwealth Bank of Australia (ASX: CBA) being among its top 10 tenants.

Also, no single tenant takes up more than 5.1% of the REIT’s gross rental income (GRI).

The REIT manager has reported that there has been no material impact up till May 2021 to FLCT’s portfolio and that just the retail portion of the portfolio making up 1.8% of GRI being challenged.

Mapletree Industrial Trust (SGX: ME8U)

Mapletree Industrial Trust, or MIT, owns a portfolio of 115 properties spread out across six industrial property sub-segments such as flatted factories and business parks.

The REIT has a diversified tenant base of more than 2,000 tenants and also has a strong sponsor in Mapletree Investments Pte Ltd, a unit of state-owned Temasek Holdings.

Despite the doling out of rental reliefs to tenants, DPU still managed to rise by 2.5% year on year to S$0.1255 as growth in distributable income was contributed by the newly acquired US data centres.

Portfolio occupancy remains high at 93.7% as of 31 March 2021 and the REIT’s largest tenant, Hewlett Packard (NYSE: HPQ), takes up 7.3% of GRI.

With MIT’s portfolio well-diversified across multiple trade sectors, the REIT should remain unaffected by tighter COVID measures.

Ascendas REIT (SGX: A21U)

Ascendas REIT is one of Singapore’s oldest industrial REITs and owns a portfolio of 209 properties valued at S$15.1 billion.

The REIT’s sponsor is CapitaLand Limited (SGX: C31), a real estate conglomerate with a global portfolio worth S$137.7 billion as of 31 March 2021.

Ascendas REIT’s customer base is diversified across more than 20 industries, with data centres taking up 11.4% of GRI.

The REIT also has a tenant base consisting of well-known companies such as Singtel (SGX: Z74), Pinterest (NYSE: PINS) and Citibank (NYSE: C).

The wide base of customers helps the REIT maintain its rental income without interruption.

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This article was written by Royston Yang of The Smart Investor. Disclaimer: Royston Yang owns shares of Keppel DC REIT and Frasers Logistics and Commercial Trust.