2 Rock-Solid Singapore REITs That Have the Lowest Gearing Ratios
March 23, 2023
Interest rates are rising. The US Federal Reserve has just gone ahead and raised them by another 25 basis points (bps).
That comes in the face of a banking crisis in both the US and Europe. So, for Singapore investors, how does it impact the market here?
Well, for one, Singapore’s many REITs have been whacked by rising borrowing costs. With that, a lot more attention is being paid to gearing ratios, which is basically a measure of a REIT’s financial leverage.
The higher the gearing, the more debt it holds. So, it’s worth asking which Singapore REITs (S-REITs) are best-positioned to weather this high interest rate environment – at least from a gearing ratio perspective.
That’s because the Monetary Authority of Singapore (MAS) sets a maximum 50% gearing ratio cap for any Singapore REIT. As most of the REITs here are conservatively run, many stay within the 35-40% range.
Thankfully, Singapore investors have plentiful options for REITs that have gearing ratios below even that threshold.
So, here are the two Singapore REITs that have the lowest gearing ratios in the S-REIT universe.
1. Sasseur REIT
First up is China-focused retail mall outlet owner Sasseur REIT (SGX: CRPU), which has a gearing ratio of just 27.6%.
It’s been a favourite among investors who want to tap into the China reopening story. Indeed, I had also named Sasseur REIT as one of my top five Singapore REITs to buy in 2023.
Sasseur REIT owns and operates four premium outlet malls in China; two in Chongqing, one in Hefei, and one in Kunming.
Unsurprisingly, it had a pretty poor Q4 2022 – as was expected – given the Covid-19 outbreaks in China kept people at home.
As a result, its distribution per unit (DPU) for the period was down 31.5% year-on-year to 1.302 Singapore cents (see below).
Source: Sasseur REIT Q4 2022 and FY2022 earnings presentation
However, the REIT’s earnings are now set to rebound, along with the opening of the Chinese economy, as people go out and spend.
It also carried out a recent refinancing that will lengthen its weighted average debt to maturity from just 0.2 years to a much more comfortable 3.6 years.
With its low gearing ratio, it has S$791 million in available debt headroom if it wants make any acquisitions or sees opportunities to boost returns.
2. Frasers Logistics & Commercial Trust
The big Europe- and Australia-focused juggernaut Frasers Logistics & Commercial Trust (SGX: BUOU) comes in at second, with a gearing ratio of just 27.9%.
Also known as FLCT, the REIT has 105 properties that are worth a combined S$6.7 billion, with about half of its assets (by value) located in Australia.
Around 40% is in Europe and the UK with the remaining 10% in Singapore, so FLCT is very much an overseas-focused story.
As I wrote back in February, its latest earnings were in line as expected and showed some solid rental reversions during its Q1 FY2023 period.
One of the bright spots for the REIT is its extremely flexible capital position. Its sizeable portfolio puts it firmly in the large cap camp of SGX REITs.
As a result, its available debt headroom is that much larger, at over S$3 billion before its hits the 50% gearing ratio cap.
While investors should be monitoring the macroeconomic situation in both Europe and Australia, its properties’ critical position in supply chains – along with its solid capital position – mean that at least FLCT has flexibility if a crisis ensues.
Low gearing = freedom
In the world of REITs, the ability to say you’ve got a low gearing ratio also means you’ve got freedom – both in terms of funding but also via not being weighed down by excessive debt.
In an environment like the one investors are facing, where fear seems to be everywhere, any material declines in REITs’ net asset values (NAVs) can quickly see gearing ratios rise.
However, with low gearing ratios, that danger is significantly curtailed.
It’s for that reason that both Sasseur REIT and Frasers Logistics & Commercial Trust offer rock-solid REIT options for Singapore dividend investors.
Sign up here for our next S-REIT webinar, where we’ll be hosting the management team of Sasseur REIT on Thursday 30 March at 12pm.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.