Within the REIT sector, there are four resilient REITs that KGI recommends for investors looking to build a defensive portfolio when the current market sentiment is in the doldrums.
Investors Takeaway: Go Defensive With These 4 Resilient REITs
- Frasers Centrepoint Trust
Amongst retail REITs, KGI views Frasers Centrepoint Trust as one of the most defensive retail REITs with a high exposure to suburban malls. Frasers Centrepoint Trust comprises of 6 retail properties with an overall occupancy of 94 percent. It currently has one of the lowest gearing levels of 29 percent, which gives the REIT manager ample debt headroom for new acquisitions.
Frasers Centrepoint Trust is currently trading at its long-term average price-to-book value of 1.1 times. From KGI’s perspective, this is an undemanding valuation, considering that the REIT also offers a dividend yield of 5.5 percent. A potential catalyst to the REIT would be the injection of Waterway Point or North Point City North Wing into the REIT, which KGI believes has yet to be priced in.
- Netlink NBN Trust
Netlink NBN Trust (NLT) designs, builds, owns and operates the passive fibre network infrastructure (comprising ducts, manholes, fibre cables and Central Offices) of Singapore’s Next-Gen National Broadband Network (NBN). About 85 percent of its revenues are derived from its fibre business (62 percent from residential connections, 8 percent from non-residential connections, and 15 percent from others). The remaining 15 percent is derived from Ducts and manhole services. NLT’s network is currently the only fibre network with nationwide residential coverage in Singapore.
Given that Netlink NBN Trust’s nationwide network is the foundation of the NBN and has a monopoly on the nationwide residential fibre coverage, its business model is resilient against economic shocks and also provides a predictable and regulated stream of revenue. Growth for Netlink NBN Trust will likely be driven by the new development of residential areas and Singapore’s push to transform into a smart nation.
Netlink NBN Trust currently offers a forward-FY19 dividend yield of 6.3 percent and, thus fits into the category of a defensive stock with high barriers to entry to weather shocks in the economy.
- Manulife US REIT
Manulife US REIT reported 2Q18 distributable income of US$16.5 million (+65 percent year-on-year). This was led by higher contribution from acquisitions of Plaza, Exchange, Penn and Phipps. However, distribution per unit (DPU) fell 17 percent due to the drag from the enlarged unit base from the issuance of preferential offering and only 9 days of income contribution from Penn and Phipps. However, on an adjusted basis, DPU would have been up 5.5 percent.
Manulife US REIT’s portfolio occupancy remained robust at 96 percent (as at 2Q18) with less than ten percent of leases (by net leasable area) expiring between 2H18 and 2019. In view of the rising interest rate environment, the manager has expressed its intention to concentrate on organic growth by proactively managing leases and capital management like securing early renewals of leases.
- Mapletree Industrial Trust
Mapletree Industrial Trust is an industrial REIT with 99 properties under its portfolio. With a indicative dividend yield of 6.3 percent for FY19, KGI highlights Mapletree Industrial Trust as an attractive defensive play to add into one’s portfolio.
Mapletree Industrial Trust currently undergoing some Asset Enhancement Initiatives (AEI) to unlock value in their existing properties. While Mapletree Industrial Trust continues to focus its property investments in Singapore, it is also exploring higher growth areas i.e. established data center markets. Mapletree Industrial Trust plans to ride on the growth in demand for data storage as worldwide data is projected to increase 10 times by 2025 and mobile connectivity to reach 75 percent of the world population by 2025 (according to IDC).