3 Overseas REITs offering growth and good income

By ShareInvestor – 28 October

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Article highlights:

  • These 3 Overseas REITs have growing dividends and offer yields above 4%.
  • Sunlight REIT – Exposure to both office and retail sectors in Hong Kong.
  • Pavilion REIT – Owns a portfolio of retail-focused properties in Malaysia
  • National Storage REIT – Largest self-storage owner-operator in Australia and New Zealand
  • How screening for Overseas REITs can be a breeze

Over the past decade, Real estate investment trusts (REITs) have become a favourite asset class of Singapore investors due to their ability to offer both stable yields and potential capital gains.

However, the current market sentiment is that the Singapore REITs are looking overly stretched in their valuations as a whole. In fact, many of them have started to issue rights or private placements lately, adding another layer of uncertainty among the REITs investors.

With that in mind, we decided to venture overseas to see if there are any palatable REITs that fulfil the 3 metrics in Shareinvestor Webpro (data as of 27 November 2019):

  • Dividend Yield >4%
    A minimum yield of 4% will likely sieve out companies willing to pay above-average yields.
  • CAGR of DPU >2% for past 3 years
    It’s important to go for decent yields with growing dividends as compared to high yields in a decline state.
  • Total Debt to Total Assets < 0.4x (for REITs and Trusts)
    Maintaining a 5% buffer to the current stipulated leverage limit of 45% allows for better response to changing market conditions.

Sourced from Shareinvestor’s Webpro

With the above criteria, we identify 1 potential REIT across each country – Hong Kong, Bursa Malaysia and Australia to share across more insights.

1. SUNLIGHT REIT (435.HK)

Sunlight REIT is the first Hong Kong REIT with exposure to both office and retail sectors. Listed in December 2006, the REIT now owns a diversified portfolio of 11 office and five retail properties in Hong Kong with a total gross rentable area of over 1.2 million sq. ft.

The office properties are primarily located in core business areas, including Wan Chai and Sheung Wan/Central, as well as in decentralized business areas such as Mong Kok and North Point.

The retail properties are situated in regional transportation hubs and new towns including Sheung Shui, Tseung Kwan O and Yuen Long, as well as in urban areas with high population density.

With that, we zoom into the company’s dividend trends and financial ratios below.

Dividend Analysis and Price/NAV

Sourced from Shareinvestor’s Webpro

From the dividend chart above, we can see that the distribution per unit has been going up steadily for 7 years despite the huge fluctuations in its earnings.

Sourced from Shareinvestor’s Webpro

Based on its Jun FY2019 distributions, its dividend yield stands at 5.03% - an all time low from FY2012.

Sourced from Shareinvestor’s Webpro

Looking at its Price/NAV figures, Sunlight REIT’s valuation has also moved up over the years from less than 0.4x to 0.56x as of Jun FY2019.

Outlook

Given the ongoing Hong Kong protests, investors may be worried about the impact it will cause to Sunlight REIT.

On that note, the management has the below comments on their 2 segments:

  • Downside risks of the office portfolio is relatively low underpinned by healthy Grade A office demand in business areas
  • Prospects of the retail sector are murky due to slowdown in consumer spending and rise in supply of new retail space

Based on its closing share price of HK$5.00 per share, Sunlight REIT trades at around 0.52 times its Price/NAV ratio and dishes out a distribution yield of 5.4%.

2. PAVILION REIT (5212.MY)

Pavilion REIT owns a diversified portfolio of income producing real estate used predominantly for retail purposes (including mixed-use developments with a retail component) in Malaysia and other countries within the Asia-Pacific region as well as real estate-related assets.

According to its results release, the properties under Pavilion REIT’s portfolio comprises Pavilion Kuala Lumpur Retail Mall, Pavilion Tower, DA MEN Mall, Intermark Mall and Elite Pavilion Mall as of 31 March 2019.

Similarly, let’s delve into the company’s dividend trends and financial ratios for more details.

Dividend Analysis and Price/NAV

Sourced from Shareinvestor’s Webpro

From the dividend chart above, we can see that the distribution per unit has been ticking up from FY2012 to FY2016. However, it seems to have reached a plateau level from there onwards.

In addition, their earnings per unit have not been growing over the past 4 years.

Sourced from Shareinvestor’s Webpro

Based on its Sep FY2019 distributions, its dividend yield stands at 5.06%, at the lower end of the 5 – 6% range in the past 7 years.

Sourced from Shareinvestor’s Webpro

Looking at the above, Pavilion REIT’s Price/NAV has increased from around 1.1x to 1.36x as of Sep FY2019. It is also at an all time high since FY2011.

Outlook

According to its latest 3QFY2019 results, the management team seems to be muted on the REIT’s growth as taken from their commentary below:

“The Malaysian retail industry is expected to grow marginally in the 4th quarter of 2019 due to year end festive holidays and promotions.

Hence to stay competitive and to ensure Pavilion REIT results are sustainable, the Manager will continue to explore enhancement to its tenant mix, cost management and enhance shopping experiences to attract shoppers.”

Based on its closing share price of RM$1.80 per share, Pavilion REIT trades at around 1.4 times its Price/NAV ratio and offers a distribution yield of 4.87%.

3. NATIONAL STORAGE REIT (NSR.AX)

National Storage has its origins in a number of pioneering self-storage businesses. In December 2000, the merger of Stowaway Self Storage, National Mini Storage and Premier Self Storage consolidated over 30 years’ experience in the industry and formed the foundations for the business.

Today, National Storage is Australasia’s largest self-storage owner-operator, tailoring self-storage solutions to over 60,000 residential and commercial customers at more than 170 storage centres across Australia and New Zealand.

The National Storage offering spans self-storage, business storage, climate-controlled wine storage, vehicle storage, vehicle and trailer hire, packaging, insurance and other value-added services.

Below, we take a look at the company’s dividend trends and financial ratios in more details.

Dividend Analysis and Price/NAV

Sourced from Shareinvestor’s Webpro

From the dividend chart above, distributions per unit have surged from FY2014 to FY2016 but started to slow down since then although the earnings per unit have skyrocketed over the same period.

Sourced from Shareinvestor’s Webpro

Based on its Jun FY2019 distributions, its dividend yield stands at around 5.5% - somewhere in between the range across the past 4 years.

Sourced from Shareinvestor’s Webpro

Looking at its Price/NAV figures, NSR’s Price/Nav valuation has came down steadily over the years to around 0.9x.

This is due to the bigger increase in its NAV as compared to its share price. Its NAV went from A$1.11 in FY2015 to A$1.93 while share price only moved from around A$1.40 to A$1.75 in Jun 2019.

Outlook

Looking at its FY2019 results presentation, one can probably expect some interesting stuff from NSR going forward.

Here are some of the key strategic initiatives the management team is embarking on:

  • Accelerating the development pipeline with 13 new development and expansion projects currently underway
  • Successful completion of JV arrangements with APSF
  • Continuation of successful JV arrangements with BFG
  • Continuation of Parsons development pipeline in Perth

Based on its share price of A$1.93 per share, National Storage REIT trades at 1.17 times its trailing Price/NAV ratio and dishes out a 4.25% distribution yield.

Conclusion

To conclude, one can discover a whole new type of REIT like National Storage REIT – focused on self storage businesses, or even uncover potentially undervalued REITs like Sunlight REIT which trades at a P/B of 0.56x.

Moreover, these overseas REITs match our dividend portfolio criteria of 2% compounded distribution growth and offer decent yields (>4%). All these can be done in a short time if you know where to scout for these REITs across 7 markets using our ShareInvestor’s feature as seen above.

If you wish to find out more about this popular stock screener, you can visit http://portfolio.shareinvestor.com for more details.

Check out ShareInvestor’s webpro to access timely updates to empower your investment research - http://www.shareinvestor.com/sg

Happy investing!

 

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