Best-performing REITs in the first half of 2023. Why are investors buying them?

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By Beansprout • 10 Jul 2023 • 0 min read

While Singapore REITs have not seen a strong rebound year-to-date, Keppel DC REIT, Frasers Logistics & Commercial Trust, and Cromwell European REIT have performed better. We find out why.

Singapore REIT best performing first half 2023

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What happened?

As we enter the second half of 2023, it is time to take stock of the performance of Singapore REITs in the first six months of the year.

Singapore REITs traded flat in the first six months of the year, with the iEdge S-REIT index generating a positive total return of about 1%.

This might be a slight relieve to investors after the iEdge S-REIT index saw a negative total return of 12% in 2022. 

It would seem like the slower pace of inflation and pause in Fed rate hikes has helped to ease concerns about the impact of higher interest rates on the REITs.

Interestingly, while Singapore REITs have not seen significant price movements on average in the first half of the year, there were some REITs that have delivered more stellar performance.

In particular, Keppel DC REIT saw a total return of 22%, Frasers Logistics Trust saw a total return of 8.9%, and Cromwell European REIT saw a total return of 8.6% year-to-date. 

Let us dive deeper into each of these names to understand what might be driving the strength in the share price performance. 

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Total return between 31 Decemeber 2022 and 10 July 2023. Source: Beansprout REIT idea tool

 

Best-performing Singapore REITs in the first half of 2023

#1 - Keppel DC REIT (SGX: AJBU)

There are several reasons why Keppel DC REIT has regained the confidence of investors this year. 

Firstly, its operational performance remains solid with portfolio occupancy at 98.5% in the first quarter of 2023. 

With the majority of its rental income derived from clients with investment grade or equivalent credit profiles, it would seem like the slowdown in the technology sector has not had a major impact on the leasing prospects of Keppel DC REIT. 

Also, Keppel DC REIT has a moderate gearing of 36.8%, with 73% of its debt on fixed rate. This would mean that the impact to distributions from higher interest rates has been relatively limited. 

As a result, Keppel DC REIT was able to report a 3% increase in distributions per unit (DPU) in 1Q 2023 compared to the previous year. 

It is also worth noting that institutional investors have been buying Keppel DC REIT, making it the stock most bought by institutional investors in the first half of 2023.

This might have helped to offset some of the selling in the stock after it was removed from the Straits Times index in the June review. 

Based on consensus estimates, Keppel DC REIT offers a forward dividend yield of 4.8% as at 10 July 2023.

Learn more about what to expect next for Keppel DC REIT here

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Source: SGX

 

#2 - Frasers Logistics & Commercial Trust (SGX: BUOU)

Frasers Logistics & Commercial Trust (FLCT) owns a portfolio of logistics, industrial and commercial real estate assets, and was formed from the merger between Frasers Logistics & Industrial Trust and Frasers Commercial Trust in 2020.

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Source: FLCT

 

FLCT has seen a decent portfolio occupancy rate of 95.9% across its portfolio in the first half of fiscal year 2023. In fact, occupancy across its logistics and industrial portfolio was 100%. This was weighed down by lower occupancy of 89.8% for its commercial portfolio.

Its logistics and industrial portfolio has been performing particularly well, with positive rental reversions of 23.7% in the second quarter of FY2023.

However, FLCT’s distributions per unit (DPU) declined by 9% in the first half of fiscal year 2023 compared to the previous year. 

This is due to the impact of weaker foreign currency exchange rates, particularly the Australian dollar, Euro, and Greater Britain Pound (GBP) compared to the Singapore dollar. 

What some investors may like about FLCT is its low debt levels, with a gearing of only 28% as at March 2023. This is lower than the sector average of 36%. 

Based on consensus estimates, FLCT offers a forward dividend yield of 6.0% as at 10 July 2023.

#3 - Cromwell European REIT (SGX: CWBU)

If you are not familiar with Cromwell European REIT, it is the largest SGX-listed REIT with 100% European portfolio. 

The REIT has a reputable sponsor listed in Australia which continues to own a significant stake in the REIT. 

Its portfolio of logistics and office assets in Europe has a good mix of tenants and a high occupancy of 95.8% in the first quarter of 2023.

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Source: Cromwell European REIT

The REIT has been active in managing its portfolio, and recently divested an office asset in Italy for Euro 93.6 million.

Following the sale of its third largest office asset, about half of Cromwell European REIT’s portfolio is now exposed to the light industrial and logistics sector. 

The divestment will also reduce the gearing of Cromwell European REIT to 37.2% on a pro-forma basis as at 31 December 2022. 

This could help to ease concerns on its debt levels, especially after its gearing reached 40.6% as at March 2023. 

Based on consensus estimates, Cromwell European REIT offers a forward dividend yield of 9.6% as at 10 July 2023.

Learn more about Cromwell European REIT’s strategy with our interview with CEO Simon Garing here. 

See how Cromwell European REIT compare to other REITs with predominantly European assets here.

What would Beansprout do?

In our guide to Singapore REIT investing, we shared that we would review the REIT’s fundamental strength, financial health, and valuation when considering whether to invest in a REIT.

The three REITs that performed well in the first half of 2023 – Keppel DC REIT, Frasers Logistics & Commercial Trust, and Cromwell European REIT, would have met at least two of the three criteria in our checklist. 

To find out how other REITs perform on this checklist, check out our REIT ideas tool.

If you’d prefer to own a diversified basket of REITs in one trade rather than analyse individual REITs, find out more about Singapore REIT ETFs here.    

Join the Beansprout Telegram group to get the latest insights on Singapore REITs, stocks, bonds and ETFs.

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