Going REITs Shopping Again

The markets were reeling from the latest not-so-good United States (US) consumer price index results and geopolitical jitters. With a recent capital injection and the resulting asset allocation skewness of our Bedokian Portfolio, plus a perceived delay of US interest rate cuts, it is time to go shopping again for the real estate investment trust (REIT) asset class.

Back in October 2023 I had shared on which REIT we had entered. This time round I will share what we had gone in or planning to go into, our rationale, and our average and entry prices.

REIT #1: Frasers Logistics & Commercial Trust (FLCT)

Based on the latest business update in January 2024¹, the gearing and interest coverage ratios were at 30.7% and 6.2 times respectively, with 76.8% of its borrowings under fixed rates, which indicated a healthy debt profile vis-à-vis other REITs of the same logistical, industrial and commercial sectors. The logistics and industrial arm of FLCT had maintained a 100% occupancy, though the (still) worrying trend of a not-so-robust occupancy rate for its commercial properties, especially for its United Kingdom (UK) properties, is there. The recent passing of UK law of allowing employees to have the legal right of working from home from the onset of employment could likely exacerbate the commercial space situation there.

Despite the downtrend, we believe that the logistics and industrial part still holds relevance in the future markets and economy, and bring about better rental reversions. We had initiated a position of SGD 1.04, with a total average price of SGD 1.07. 

REIT #2: Frasers Centrepoint Trust (FCT)

FCT need no introduction as being the king of suburban malls in the north, east and northeast. Recently in March 2024, FCT had upped its interest of Nex mall to 50%², funded by private placements and debt financing. Accordingly, the acquisition would provide an accretive 1.5% in the distribution per unit³, and the gearing ratio would be at 37.8%⁴ (assuming divestments of Hektar REIT and Changi City Point were adjusted into the financial statements ending 30 September 2023). 

Overall, FCT’s retail malls enjoyed an occupancy rate of not less than 99%, proving the resiliency and relevance of suburban shopping malls in Singapore. Our current average price for FCT is SGD 2.05, and we are planning to enter it around the range of low to mid SGD 2.10s.

REIT #3: Nikko AM – Straits Trading Asia ex Japan REIT ETF (CFA)

OK, this is not really a REIT per se but a collection of REITs from the Asia ex-Japan region. It is part of our core-satellite strategy of having exchange traded funds (ETFs) forming the core and individual counters making up the satellite portion. When there was only three REIT ETFs back then in 2018, CFA was selected due to its diverse REIT holdings in terms of countries and sectors. We had recently bought in CFA at SGD 0.783, and our current average price is SGD 0.953.

REIT #4: Paragon REIT (Paragon)

Honestly, for this round, Paragon is more of a “want” than a “need” for this round of additions, but I will give an honourable mention in this post. Paragon's low gearing ratio, healthy occupancy rate (at least 98% across properties) and its retail profile provided a form of resilience. Recently in February 2024, after a long period of speculation, Paragon had rejected to buy Seletar Mall from its sponsor as part of its right-of-first-refusal⁵. 

While in my opinion the establishment of another foothold in the Singapore suburban mall landscape (after its foray into Clementi Mall, which to me is a good move) was gone, but with their explanation of that it is a dilutive acquisition, plus the uncertainty of the interest rate situation (their last known interest coverage ratio was about 3.5 times), prudence is key in such conditions.

Conclusion

If you had noticed, Reits #1, 2 and 4 were mentioned in my October 2023 post, so this was just a rehash. Frankly I had been prospecting other REITs to enter but eventually decided to just look at the present holdings and determine their current health and price to enter. It is alright to just add on to one’s existing portfolio and it is not necessarily to look for new ones to enter simply because it is a must to get it.

1 – 1QFY24 Business Updates. Frasers Logistics & Commercial Trust. 30 Jan 2024. https://flct.frasersproperty.com/newsroom/20240130_214656_BUOU_QWI72KXHOX61KRIR.1.pdf (accessed 14 Apr 2024)

2 – Completion of the acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction. Frasers Centrepoint Trust. 26 Mar 2024. https://fct.frasersproperty.com/newsroom/20240326_212947_J69U_JBZQX6UOU2EAHM9N.1.pdf (accessed 14 Apr 2024)

3 – Circular to unitholders in relation to the proposed acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction, p30. Frasers Centrepoint Trust. 4 Mar 2024. https://fct.frasersproperty.com/newsroom/20240305_225314_J69U_L8NR94BDT0MKA9D7.2.pdf (accessed 14 Apr 2024)

4 – ibid, p32

5 – Lim, Jessie. Paragon Reit rejects Cuscaden Peak Investments’ offer to buy The Seletar Mall. The Straits Times. 29 Feb 2024. https://www.straitstimes.com/business/companies-markets/paragon-reit-rejects-cuscaden-peak-investments-offer-to-buy-the-seletar-mall  (accessed 14 Apr 2024)