Especially in the high interest rate environment we are in right now, when it comes to choosing REITs to invest, one of the things we will look at is its gearing ratio (or aggregate leverage) to make sure that it remains a good distance to the regulatory limit (at 50.0% if a REIT is able to maintain its interest coverage ratio at above 2.5x, or 45.0% if otherwise.)
Last week, I have shared some information on the 5 REITs listed on the Singapore Exchange with the lowest gearing ratios, and in case you’ve missed out the post, you can find it here.
Today, my focus turns to REITs with the highest interest coverage ratios shared by The Business Times in the same article published in late-June (you can read the article in full here) – for those who do not know what this ratio is, it measures a REIT’s ability to service its interest payments. As such, the higher a REIT’s interest coverage ratio is, the better. My preference is towards REITs that are able to maintain its interest coverage ratio at above 5.0x.
In this post, I will be sharing more about the 5 REITs in this list -particularly the asset types it invests in, together with its financial performance, portfolio occupancy, debt profile, and distribution payout over the last 5 years, so as to give you a better understanding of each of them to help you make better investment decisions.
Let’s begin:
1. Parkway Life REIT (SGX:C2PU)
Listed way back in 2007, Parkway Life REIT invests in income-producing real estate assets in the Asia-Pacific region (including Singapore) that are used primarily for healthcare and/or healthcare-related purposes.
As at 31 March 2023, the REIT’s total portfolio size stands at 61 properties totalling approximately S$2.20 billion – it has 3 properties in Singapore (in Mount Elizabeth Hospital, Gleneagles Hospital, and Parkway East Hospital), 1 specialist clinic in Malaysia (in MOB Specialist Clinics in Kuala Lumpur), and 57 nursing homes in Japan.
Parkway Life REIT has the highest interest coverage ratio among all the Singapore-listed REITs at 15.6x (as at 22 June 2023.)
Financial Performance (between FY2018 and FY2022):
The healthcare REIT has a financial year end every 31 December, and the following is its gross revenue and distributable income to unitholders recorded over the last 5 years – between FY2018 and FY2022:
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gross Revenue (S$’mil) | $112.8m | $115.2m | $121.0m | $120.7m | $130.0m |
| Distributable Income to Unitholders (S$’mil) | $77.9m | $79.8m | $83.4m | $85.2m | $87.0m |
My Observations: Apart from a slight dip in its gross revenue in FY2021 due to divestment of P-Life Matsudo (in Japan), and depreciation of the Japanese Yen (as most of the REIT’s income is derived from the country), the other years saw its gross revenue recording year-on-year improvements. Over a 5-year period, its gross revenue grew at a compound annual growth rate (CAGR) of 2.9% – a stable one in my opinion.
Distributable income to unitholders, on the other hand, recorded every single year over the last 5 years, and recording a CAGR of 2.2%.
Portfolio Occupancy (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Portfolio Occupancy (%) | 100.0% | 99.7% | 99.7% | 99.7% | 98.3% |
My Observations: At close to full occupancy over the years, I must say that its portfolio occupancy profile is very resilient. Another thing to note is that, the weighted average lease expiry as at FY2022 is 17.0 years, which provides income stability for the REIT.
Debt Profile (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gearing Ratio (%) | 36.1% | 37.1% | 38.5% | 35.4% | 36.4% |
| Interest Coverage Ratio (times) | 13.7x | 14.1x | 18.1x | 21.5x | 18.3x |
My Observations: Its debt profile is very healthy – in terms on its gearing ratio, as well as its interest coverage ratio. In fact, the REIT is one of the very few that have its interest coverage ratio in such high double digit figures.
Distribution Payout to Unitholders (between FY2018 and FY2022)
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Distribution Per Unit (S$’cents) | 12.87 cents | 13.19 cents | 13.79 cents | 14.08 cents | 14.38 cents |
My Observations: The REIT’s distribution payout to unitholders have improved every single year over the last 5 years, and recording a CAGR of 2.2% – in-line with the CAGR of its distributable income to unitholders which we have looked at earlier.
2. Daiwa House Logistics Trust (SGX:DHLU)
Listed on the Singapore Exchange in November 2021, Daiwa House Logistics Trust invests in income-producing logistics and industrial real estate assets located across Asia.
As at 31 December 2022, its portfolio comprises 16 quality logistics facilities in Japan, strategically located with proximity to transportation and shipping infrastructure, with an aggregate portfolio valuation of S$884.0m.
In terms of interest coverage ratio, the logistics REIT has the second highest among the REITs listed in the Singapore Exchange, at 8.4x (as at 22 June 2023).
Financial Performance:
As the REIT was only listed in November 2021, there are no 2 full financial years of post-IPO results to do a comparison.
However, I understand from its performance for the period since its listing (in 26 November 2021) till end-2022, while operations remained stable, its gross revenue was lower than forecast mainly due to the impact of weaker Japanese Yen.
Portfolio Occupancy:
The following is the portfolio occupancy of the REIT as at 31 December 2021 (i.e., FY2021), and also as at 31 December 2022 (i.e., FY2022):
| FY 2021 | FY 2022 | |
| Portfolio Occupancy (%) | 98.6% | 98.6% |
My Observations: From my understanding, all of the REITs’ properties are fully occupied except for DPL Koriyama.
In terms of its portfolio weighted average lease expiry as at 31 December 2022, it is at 9.6 years for its single-tenanted built to suit properties, and 5.3 years for its multi-tenanted properties – which provides a certain level of income stability.
Debt Profile:
As at 31 December 2022, aggregate leverage is at 35.9%, with 100.0% of its borrowings at fixed rates – hence mitigating any negative impacts brought about by the high interest rate environment.
Distribution Payout to Unitholders:
Distribution payout of 5.70 cents/unit declared for the period since its listing in 26 November 2021 till end-2022 (on 31 December 2022) was in-line with forecast.
3. Frasers Logistics & Commercial Trust (SGX:BUOU)
First listed on the Singapore Exchange in June 2016 as Frasers Logistics and Industrial Trust, it was subsequently renamed as Frasers Logistics & Commercial Trust following in April 2020 following the completion of its merger with Frasers Commercial Trust.
The REIT invests in income-producing real estate assets used for industrial and commercial purposes, where its portfolio comprises 105 properties worth approximately S$6.7 billion located in 5 different countries – Australia, Germany, Singapore, the United Kingdom, and the Netherlands.
As at 22 June 2023, the REIT has the 3rd highest interest coverage ratio at 8.4x. The REIT also has the 2nd lowest gearing ratio, at 27.8%.
Financial Performance (between FY2017/ 18 and FY2021/22):
The industrial and commercial REIT has a financial year end every 30 September, and the following table is the growth of its gross revenue and distributable income to unitholders over the last 5 financial years – between FY2017/18 and FY2021/22:
| FY 2017/18 | FY 2018/19 | FY 2019/20 | FY 2020/21 | FY 2021/22 | |
| Gross Revenue (S$’mil) | $178.5m | $217.1m | $332.0m | $469.3m | $450.2m |
| Distributable Income to Unitholders (S$’mil) | $106.7m | $135.1m | $201.1m | $270.1m | $281.8m |
My Observations: While the REIT’s gross revenue have dipped in FY2021/22 due to the sale of Cross Street Exchange during the year (at a 28.3% premium to book value), and effects of a weaker Australian Dollar, Euro, and British Pound against the Singapore Dollar, but it has managed to maintain a CAGR of 20.3% over a 5-year period.
Distributable income to unitholders saw growth every single year over the last 5 financial years, and growing at a CAGR of 21.4%.
Portfolio Occupancy (between FY2017/18 and FY2021/22):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Portfolio Occupancy (%) | 99.6% | 99.6% | 97.5% | 96.2% | 96.4% |
My Observations: The industrial and commercial REIT’s occupancy rate is very resilient, where it has been maintained at above 95.0% over the last 5 years.
Debt Profile (between FY2017/18 and FY2021/22):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gearing Ratio (%) | 34.6% | 33.4% | 37.4% | 33.7% | 27.4% |
| Interest Coverage Ratio (times) | 7.1x | 6.5x | 6.4x | 7.3x | 13.0x |
My Observations: The REIT has a maintained a very healthy debt headroom of more than 20% to the regulatory limit of 50%. In terms of its interest coverage ratio over the same time period, it has been maintained at above my selection criteria of 5.0x.
Distribution Per Unit (between FY2017/18 and FY2021/22):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Distribution Per Unit (S$’cents) | 7.19 cents | 7.00 cents | 7.12 cents | 7.68 cents | 7.62 cents |
My Observations: Over the last 5 years, its distribution payout to unitholders have fluctuated, and has a CAGR of just 1.2%.
4. IREIT Global (SGX:UD1U)
IREIT Global is the first Singapore-listed REIT that invests in income-producing real estate assets in Europe used for office, retail, and industrial (including logistics) purposes.
As at 31 December 2022, its portfolio comprises of properties in the following locations (with the number of properties in brackets) – Germany (5 freehold office properties), Spain (5 freehold office properties), and France (27 freehold retail properties).
The REIT is managed by IREIT Global Group Pte Ld, which is jointly owned by Tikehau Capital (listed in compartment A of the regulated Euronext Paris market, it is a global alternative asset management group with €38.8 billion worth of assets under management as at 31 December 2022) and City Developments Limited (a constituent of Singapore’s benchmark Straits Times Index, it is a leading global real estate company with a network spanning 143 locations and 28 countries and regions).
As at 22 June 2023, the REIT has the 4th highest interest coverage ratio, at 7.6x. At the same time, it is also among the top 5 REITs (sitting in 5th place) with the lowest gearing ratios, at 32.3%.
Financial Performance (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gross Revenue (€’mil) | €34.8m | €35.3m | €37.8m | €52.2m | €61.7m |
| Distributable Income to Unitholders (€’mil) | €25.1m | €25.3m | €27.4m | €34.4m | €34.6m |
My Observations: Its gross revenue, as well as its distributable income to unitholders saw improvements every single year over the last 5 years, with the former recording a CAGR of 12.1%, and the latter at 6.6%.
Portfolio Occupancy (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Portfolio Occupancy (%) | 98.6% | 94.6% | 95.8% | 95.7% | 88.3% |
My Observations: Apart from in FY2022, where the portfolio occupancy rate fell by 7.4 percentage points (pp) to 88.3% compared to the year before (due to Darmstadt Campus being vacant since December 2022 as a result of the departure of its sole tenant, Deutsche Telekom), the remaining years saw its occupancy rate maintained at above 90.0%.
Debt Profile (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gearing Ratio (%) | 36.6% | 39.3% | 34.8% | 32.1% | 32.0% |
| Interest Coverage Ratio (times) | 8.4x | 8.7x | 7.4x | 7.7x | 7.9x |
My Observations: Over the years, the REIT have maintained a healthy debt profile, where its gearing ratio have been at around the 30+% level – particularly, it has went down from a high of 39.3% in FY2019 to a low of just 32.0% in FY2022.
In terms of its interest coverage ratio, it is also maintained at around the 7.0x and 8.0x level, implying it has no problem in servicing its interest obligations.
Distribution Per Unit (between FY2018 and FY2022):
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Distribution Per Unit (€) | €0.359 | €0.357 | €0.321 | €0.293 | €0.269 |
My Observations: The REIT’s distribution payout to unitholders over last 5 years have been trending downwards – where it fell from a high of €0.359 in FY2018 to a low of just €0.269. From my understanding, it was attributed to a larger unit base due to a series of equity fund raising exercises conducted by the REIT (and this played a part in the REIT’s gearing level being maintained at such healthy levels.)
5. Keppel DC REIT (SGX:AJBU)
Back when Keppel DC REIT was listed on the Singapore Exchange in December 2014, it was the first data centre REIT in Asia.
As the name implies, it invests in income-producing real estate assets used primarily for data centre asset purposes – as at 31 December 2022, its portfolio comprises 23 data centres strategically located in key data centre hubs, across 13 cities in 9 countries in Asia Pacific and Europe. On top of that, the REIT also has debt securities issued by NetCo (M1 Network Private Limited) which holds network assets, which reinforces the diversity and resiliency of its portfolio.
The REIT has the fifth highest interest coverage as at 22 June 2023, at 6.8x.
Financial Performance (between FY2018 and FY2022):
Keppel DC REIT has a financial year end every 31 December, and the following table is its gross revenue and distributable income to unitholders growth over the last 5 years – between FY2018 and FY2022:
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gross Revenue (S$’mil) | $175.5m | $194.8m | $265.6m | $271.1m | $277.3m |
| Distributable Income to Unitholders (S$’mil) | $96.1m | $113.2m | $156.9m | $171.6m | $184.9m |
My Observations: Both the data centre REIT’s gross revenue and distributable income saw year-on-year (y-o-y) improvements every single year over the last 5 years. In terms of their CAGR, the former is at 9.6%, and the latter is at 14.0%.
Portfolio Occupancy (between FY2018 and FY2022)
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Portfolio Occupancy (%) | 93.1% | 94.9% | 97.8% | 98.3% | 98.5% |
My Observations: Very strong occupancy rate for its properties, where they have been maintained at above 90% over the last 5 years. Another thing to note is that the leases are long (at around 8 years), hence providing income stability.
Debt Profile (between FY2018 and FY2022)
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Gearing Ratio (%) | 30.8% | 30.7% | 36.2% | 34.6% | 36.4% |
| Interest Coverage Ratio (times) | 11.4x | 13.3x | 13.3x | 10.8x | 7.6x |
My Observations: Over the last 5 years, the data centre REIT’s gearing ratio is maintained at very healthy levels, at under 40.0%, which is ideal.
Even though its interest coverage ratio have slid over the years (from a high of 13.3x as recorded in FY2019 and FY2020 down to a low of 7.6x in FY2022, but it is still at a healthy level in my opinion.)
Distribution Payout to Unitholders (between FY2018 and FY2022)
| FY 2018 | FY 2019 | FY 2020 | FY 2021 | FY 2022 | |
| Distribution Per Unit (S$’cents) | 7.32 cents | 7.61 cents | 9.17 cents | 9.851 cents | 10.214 cents |
My Observations: Distribution payout to unitholders have also climbed steadily over the last 5 years. In terms of its CAGR, it is at 6.9%.
Closing Thoughts
While studying a REITs debt profile is important in light of the current high interest rate environment, but it should not be the only thing we look at to base our investment decisions on. We should also look into other aspects such as its financial performance, its portfolio occupancy, and also its distribution payout.
I hope the information presented in this post give you a better understanding of the top 5 REITs with the highest interest coverage ratio as at 22 June 2023.
However, do take note that the contents above is meant for educational purposes only, and not a recommendation to buy or sell any of the REITs. You should always do your own due diligence before making any investment decisions.
Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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