3 Promising REITs You Should Keep an Eye On

2021-03-09     thesmartinvestor
3 Promising REITs You Should Keep an Eye On

The world is rejoicing as good news continues to flow concerning our fight against the dreaded COVID-19 pandemic.

Multiple vaccines are now in circulation around the world, providing much-needed protection for the weak and vulnerable.

It’s still early days, of course, but I am confident that the tide will slowly turn against the coronavirus.

Throughout this crisis, REITs have been buffeted by intense headwinds due to both a sharp drop in demand and movement restrictions that hampered footfall and disrupted supply chains.

Income-seeking investors would have seen their passive income take a hit as numerous REITs withheld distributions to prop up struggling tenants.

However, there was a choice few that continued to power on.

Not only were these REITs resilient, but they also managed to post growth amid the tough conditions.

Here are three promising REITs you should turn your attention to.

Elite Commercial REIT (SGX: MXNU)

Elite Commercial REIT invests in commercial properties located in the UK.

As of 31 December 2020, its portfolio comprises 97 predominantly freehold commercial buildings with around 2.6 million square feet of internal area.

The unique aspect of this REIT is that it has one sole tenant: the Department for Work and Pensions (DWP), a unit of the UK government and its largest public service division.

DWP is responsible for welfare, pensions and child maintenance and is considered counter-cyclical (i.e. the division sees stronger demand during a crisis).

Elite recently released its full-year 2020 earnings and its distribution per unit (DPU) exceeded its forecast.

For the period from 6 February last year (IPO date) till 31 December 2020, DPU stood at 4.44 pence per share, 2.3% higher than the forecasted 4.34 pence.

Revenue remained resilient throughout the pandemic, falling short by just 0.1% from its forecast.

The REIT reported minimal business disruption due to COVID-19, with all DWP JobCentre locations remaining open throughout the UK’s multiple lockdowns.

In October last year, the REIT announced its maiden acquisition since its IPO.

It will acquire 58 commercial properties in the UK for £212.5 million, with around 99% of the leases again belonging to the UK government.

This acquisition is expected to be accretive and will add 3.2% to the REIT’s DPU.

United Hampshire US REIT (SGX: ODBU)

United Hampshire US REIT invests in a portfolio of grocery-anchored and necessity-based retail properties in the US, as well as modern self-storage facilities.

Its portfolio comprises 22 properties located mainly on the East Coast area in the US worth approximately US$586 million as of 31 December 2020.

Due to the nature of the REIT’s properties, they have remained open throughout the pandemic as they cater to daily necessities.

The occupancy rate remained high at 94.7% and the portfolio also has a long weighted average lease expiry (WALE) of 8.2 years.

For the period from 12 March 2020 (IPO date) till year-end, United Hampshire US REIT reported a slight 2.2% dip in gross revenue compared to its forecast.

Net property income (NPI) stood at US$31.1 million, 3.3% below its forecast, as some rent relief was doled out to tenants to assist them through the pandemic as lockdowns were imposed during the initial phase of the crisis.

However, all retail tenants have resumed business since September 2020.

Furthermore, the REIT has strong retail tenants such as Ahold Delhaize (AMS: AD) and Lowe’s (NYSE: LOW) that contributed 10.4% and 6.8% of rental income for December 2020, respectively.

Prime US REIT (SGX: OXMU)

Prime US REIT’s portfolio consists of income-producing commercial assets in the US.

The REIT owns 12 Class A freehold office properties located in 10 US office markets, with a portfolio value of around US$1.4 billion as of 31 December 2020.

Despite the trend towards telecommuting brought about by the pandemic, Prime’s portfolio occupancy remained high at 92.4% while the rental collection rate stayed at 99% throughout last year.

Leasing momentum was strong in the second half of 2020, with around 143,000 square feet of office space taken up at a positive rental reversion of 8.7%.

As of 17 February 2021, the REIT also reported a strong start to the year with close to 49,000 square feet leased out at a positive rental reversion of 6.9%.

These numbers attest to the resilience of the REIT’s portfolio of high-quality properties.

For the full-year 2020, Prime US REIT’s gross revenue exceeded its forecast by 6.6%, while distributable income to unitholders exceeded forecast by an impressive 15.6%.

DPU stood at US$0.0694, 3.6% higher than the REIT’s forecast.

The REITs gearing remains low at 33.5% at end-2020, allowing significant room for the REIT to gear up for DPU-accretive acquisitions.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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