Singapore REITs are usually considered fairly stable investments. But the past month has been brutal for S-REITs as the the Federal Reserve continues with its string of aggressive interest rate hikes.
Higher interest rates mean higher interest expense. This usually eats into REIT earnings and reduces the REIT’s distributable income (DPU). And with low-risk investments like T-bills and Singapore Savings Bonds offering increasingly higher yields, many investors would rather shift their funds there instead.
A bargain opportunity? Undervalued REITS with high yield
Although the REITs sell-off has been painful, I’m quite excited to scoop up more REITs at inexpensive valuations.
The last time REITs were so cheap was during the pandemic crash in 2020. When REIT prices decline, dividend yields get pushed up. Now could be another opportunity to lock in high dividend yields before REIT prices rebound.
Of course, as investors we need to do our due diligence and not just buy on the basis of yield alone. Here are 5 REITs I’ve added to my watchlist that offer:
- 6% or higher dividend yield (otherwise T-bills / SSB would make more sense)
- Attractive valuations
- Strong fundamentals
Of these 5 REITs, I’m most excited about blue-chip Frasers Logistics & Commercial Trust.
Frasers Logistics & Commercial Trust (SGX: BUOU)
Frasers Logistics & Commercial Trust (FLCT) invests in logistics and commercial properties. Its portfolio comprises 105 properties across Singapore, Australia, Germany, UK and the Netherlands.
FLCT is a blue chip REIT – it’s one of the 30 constituents of the Straits Times Index (STI). But at the current share price, its dividend yield is the highest out of the other blue chip REITs.
Blue chips are generally stable and dependable investments, so I feel confident investing in FLCT for the long-term.
Diving into the financials, there’s quite a lot to be positive about based on their 3QFY22 business update (figures as of 30 June 2022).
- High occupancy rate of 96.5%
- Long weighted average lease expiry (WALE) of 4.6 years
- Aggregate leverage of 29.2%, comfortably below the 50% gearing limit, which should provide ample debt headroom for acquisitions
- Very low cost of borrowings of 1.6%. FLCT is not paying a lot in interest to finance their debt
- 80.6% of FLCT’s debt is fixed rate, so it’s less vulnerable to higher borrowing costs over the next few years
- Well-spread debt maturity profile with weighted average debt tenor of 3 years. This suggests that FLCT’s debt is distributed over quite a long period of time, which lessens the risks when the need for refinancing comes
- High interest coverage ratio of 12.4 times, indicating that FLCT has a strong ability to withstand financial shocks without affecting its ability to repay debts
Overall, it’s good to see that FLCT has taken proactive steps at managing borrowing costs, especially in the rising rate environment. This could help shield their distributable income from higher interest expense.
FLCT dividend yield over the years
FLCT has been increasing its dividend payout over the past 3 years, supported by its exposure to logistics assets amid increased e-commerce demand.
Going forward, FLCT can continue to tap on a strong and reputable sponsor (Frasers Property) for a pipeline of logistics and business park properties to help drive DPU growth.
How to invest in FLCT
You can buy shares of FLCT (SGX:BUOU) through any broker that offers access to the Singapore market. Syfe Trade is one of them.
I’ve been using Syfe Trade to buy US stocks, so it’s great I can now consolidate my US and Singapore holdings in one place. The process for buying SGX stocks is the same as buying US stocks – simple and intuitive. I’ve done up a step-by-step guide here.
In terms of fees, Syfe Trade is on par with Tiger and moomoo with low commission of just 0.06% of your trade value (minimum S$1.98 per order). There’s no platform fee and the SGX custody fee is waived.
The main difference with the US market access is that there’s no fractional shares for SGX securities. For example, I’ll need to buy 100 shares of FLCT to meet the minimum lot size.
Syfe Trade is best for investors who want a fast, uncomplicated trading experience. If you’ve already done your own research, you don’t really need fancy charts and other bells and whistles to buy a stock.
You want to get in, buy, and get on with your day.
So I like that Syfe Trade has a clean interface. Plus, it’s easy to get trading ideas. Go to the “Discovery” tab and you can browse the “Most popular” stocks or check out themes like “High dividends” or “Owned by Temasek“.
You can also get more data on your chosen stock by clicking on the “Analysis” tab for analyst ratings. Based on the average estimated target price, there’s a potential upside of 26% from FLCT’s current price.
Promo: Get S$70 in cash credits
If you’re new to Syfe, enter our code FRUGALFOX to receive S$70 worth of cash credits. You can use it to buy any stock, ETF, or REIT you want.
Simply enter the code when creating your Syfe Trade account. Deposit a minimum of S$2,000 and make one trade (can be of any value) to qualify.
Download the Syfe app and register with Singpass to start investing!
Disclaimer: This article is not meant to be financial advice. Always do your own research before investing.