UnitedHampshire Retail REIT Year End: 8+% Dividend with Potential Capital Gains. A Top Pick

 Unitedhampshier ("UHREIT") has announced its year end results. In summary:

• Leverage is down to 38.9%
• Annual Dividend is 4.06 US Cents
• Rental Escalation
• Interest Coverage Ratio of 2.5 times

Outlook

Impressive results throughout with revenue growing due to rental escalation. Its cost of interest seems to have peaked with interest now falling for 4Q.

Overall, I expect UHREIT to increase dividend due to higher rentals + possibility of the REIT manager electing to be paid in Units should share price hit 60 US cents.

Capital Gain

Often people says investing in REIT is for the dividends and not capital gains, however UHREIT may buck the trend- it offers both. With greater appreciation by investors of the resilience of its sub sector (groceries), investors will  be aware of the resilience in its dividends and find the REIT a steal at 48 US Cents (8.4% yield). I do think a re-rating will occur where it becomes a 7% yielder. 

In addition, I forsee with interest rate falling and revenue growing, the DPU of UHREIT will be 4.1 US cents for 2025 despite the divestment of 1 property. At forward 7% yield, I am guiding for UHREIT to be 64 US cents in 2025. 

UHREIT is exceptional and will best any Singapore property. It is going be a dividend yielder + capital gain giant for 2025. It should be worth its NAV of 75 US cents because of the annual profits it is clocking. With the fall in interest rates, its dividend will start to rise from its annual 4.06 US cents dividend.

Spending for Jan 2025: Hit $800

Previously, I had covered how I plan to budget my approximate $755 spending in credit cards for daily neccessities around Maybank Family and Friends Card.

Performance for Jan 2025

Total expenditure was $829 with $52 in cashback clocked.

Grocery Spending is High Due to Inflation

Close to my estimates, grocery remained expensive coming in at $410 per month. About $50 came from dining because F&B outlets withing supermarkets have the same MCC code of supermarket for Donki and NTUC fairprice.

Grocery expenditure will continue to form bulk of my expenses as I continue to prepare my meals to eat, drink and continue living in this world (sorry for being morbid, but harsh facts of life)

Spending Behaviour

Despite spending less on outside food, I incurred a medical cost at a government clinic, so it helped to reach the $800 minimum spending. 

Front loading was done due to an Eight Telecom Mobile credits promotion where if we top up $28 in credits we get $38 credited instead. This was bought on shopee. I also bought $20 of NTUC voucher on shopee to clear my shopee coins which offered me a final 25% discount off NTUC vouchers

My grocery spending in February might be slightly lower as I will burn through the the $20 NTUC voucher and not eat at F&B outlet within supermarket. For Feb, it is likely dining & groceries will be in the $300 range. Actual e- commerce expenditure might be zero. So I will be short of about $100 in estimated expenditure. Front loading might be needed. Dosen't help that Feb only has 28 days.

Transport

One thing I learnt is that Simplygo transactions takes a while to be posted to credit cards. For the month of Jan, my EZ link transportation fares from 24 Jan have not been calculated. As such they will only be charged in Feb. So the positive is that likely my Feb transport fare will be a lot higher. This will help me reach the $800 spend easier.

LINK REIT (0823.HK) : Best REIT for Dividend Income at 8% and How Singaporeans can Buy It

While many singapore dividend investors will praise how good the Capitaland and Fraser Group of REITs are for dividend at 4-6% yield; there is one REIT that has a lower leverage, a more diversified portfolio and of a higher dividend yield than any REIT in Singapore at 8.3%.

This is the largest REIT in Asia and with a REIT manager model which has been praised by Straits Times.

LINK REIT- 8.3% Dividend, Not Taking Debts to Sustain Dividend, 20.6% Leverage Ratio

The title says it all, perfectly sustainable REIT, low gearing at 20.6% that no other Capitaland REIT has been able to match. To cap it off, it maintains a sustainable payout ratio for dividend not overleveraging itself.

I am not kidding, these are facts as listed in its report [See Slide 9. From here on, I will be referring more to its slides as I don't wish to printscreen everything into infographics. Readers can click on the link to view the presentation alongside this article]

Debt Profile

Being such a large REIT in Asia and with a strong balance sheet, LINK REIT has an A rating from major credit rating agencies, something that even Singapore REITs are unable to achieve. Due to its strong credit rating, its borrowing cost is at 3.69%. 

On Slide 38, it is revealed LINK REIT has 55% debt in RMB and 24.5% debt in SGD. The borrowing cost of these 02 currencies are now reducing and this means LINK REIT's all in borrowing cost will reduce in time to come, this will improve distribution per unit and justify the story of a REIT with growing distribution.

Higher Occupancy

Most of LINK REITs properties have 95% or higher occupancy rates, it shows how good the proeprties are located and highly sought after.

Essential Services Tenant Mix

In terms of tenant profile, LINK REIT is closer to that of Singapore's Fraser Centrepoint Trust, it positions itself as a neighbourhood mall catering to the masses with no luxury malls brand name like Paragon or ION orchard.

In Slide 64-68, it can be seen that in Hong Kong, its top 3 tenant types are the essential services of supermarket, market stalls and F&B which forms close to 60%. In Singapore and China, the essential services segment forms 40% of the tenant mix. Hence despite the downturn in 2 of its markets, many of its tenants have registered lower than national average decline (after all, they are essential services, essential for the livelihood of the people)

Revenue Growth and Internal Manager Model

Despite the weakness in retail, the usual positive rental reversions have helped LINK REIT report a larger revenue. Singapore was a strong point where rentals went up by 18% in Jurong Point and Thomson Plaza.

LINK REIT uses an internal manager model. Unlike Capitaland and Fraser REITs, where a percentage of the distributable income goes to another company; there is no loss of revenue in rental income within LINK REIT. Hence in a time where distributable income is growing, all the gains are given to Unitholders of LINK REIT. Even if they acquire new malls, only the Unitholders benefit. 

It is a model superior to Singapore's but Capitaland, ESR and Fraser Property refuses to give up on because of the loss in profits. There is no conflict of interest within LINK REIT. Unitholders can be assured the REIT is shareholder friendly and always acts in the interest of Unitholders.

Diversified Portfolio

While it does have majority of its portfolio in Hong Kong and China, there is a significant portion in Singapore and Australia. In Singapore, the REIT owns Jurong Point, Thomson Plaza, Ang Mo Kio Hub and is one of the largest retail landlord here.

So Unitholders are not entirely exposed to China and HK markets. And as said, their tenant profile here are close to the essential services on virtue that these malls are positioned as neighbourhood malls.

Many Positives

The icing of the cake is of course how low the leverage of the REIT is at 20.6%; this is because the REIT is not forced to buy overpriced properties from a parent company and demonstrates how the internal manager model has no conflict of interest. LINK REIT tends to buy only properties when there is strong returns for its unitholders, it does not have any conflict of interest where a parent company will try to monetise profits at the expense of a child REIT.

All distributable income it earns from its portfolio of properties worldwide goes to Unitholders. As of its price of HK$32.1, it is now at 8.3% dividend.

As said in its debt profile, its all-in interest cost is set to go down because China and Singapore is facing an environment of lowering interest rates. This is a positive and possibility of growing its dividend per unit. 

I will not be surprised that the REIT will end up giving HK$1.6per semi-annually by 2030 due to positive rental reversion and lower interest expense. It will make the REIT a future 10% dividend yielder. 

As of now LINK REIT is already giving HK$1.34 per semi-annual basis.

At an assumption of a dividend of HK$3.2 and a 6% dividend yield, I have a target price of HK$53 for this REIT.

What I am Doing

I am definitely interested in this REIT. In an environment where Singapore REITs are using more leverage and yet giving less yield than LINK, I would invest more in LINK REIT. Yes there is exchange rate risk and commission from changing my currency from SGD to HKD. But I think it is worth it.

Every year, I will be earning 3% more in dividends and if I keep LINK REIT for 3 years or when it reaches my target price, it will exceed any returns if I had kept my money in Singapore REITs. 

While Sing Dollar has appreciated about 1% annually against the HKD dollar, I still have 2% more in dividend as upside. As such I will keep minimal Sing Dollar but transfer most of it to HK Dollar to purchase LINK REIT. My exposure to LINK REIT will grow from its current 5,500 shares (when the price is right) and it will become one of my larger dividend contributor.

How Can Investors Buy LINK REIT in the Hong Kong Exchange

The digital brokerages of Moomoo, Tiger and Webull has access to the Hong Market. All Singapore investors have to do is (I) sign up for an account, (ii) tick the option to trade in the Hong Kong Market, (iii) deposit money into these digital brokerage account and (iv) pay the the approx 0.5% exchange rate fee to convert SGD to HKD and you are all good to buy LINK REIT (Code Symbol 0823.HK).

Alternatively, the traditional brokerages of DBS, OCBC, Maybank, UOB Kay HIan also allows you to buy HK stocks but you need to complete a few forms to get things processed and done. They allow foreign currency conversions as well.

But I will still recommend using the first option of digital brokerages because they are easier and have less commission. Currently, I am not paid or is being sponsored by them, so you can be assured my intent is not financial nor have conflict of interest. 

Why I Would NOT Invest in Keppel REIT and Stick to US Office REIT

 Keppel REIT has announced its full year results

There are a few danger signs shown in the REIT's latest full year financials and in addition, its share price I feel is at a high. Hence I feel it is not worth owning Keppel Office REIT and I do feel REITs outside of Singapore such as Elite UK and Prime US are of a better deal (coincidentally, Keppel has a stake in PRIME US REIT)

Summary of Keppel REIT Financial Results

Before I delve deeper, below are the results/summary of Keppel Singapore Results:

• Dividend of 5.6 cents (decrease of 3.4%), yield is 6.3%, 
• Dividend funded by SG$20 million from anniversary distribution (capital gains), 100% payout ratio
• NAV of $1.24
• Leverage grew to 41.2%
• All in interest cost of 3.4%

All in all, while Net Property Income has grown, the higher interest cost has ate into K Reit's distributable income. DPU has decreased and my main worry is how its high dividend are been sustained by growth in borrowings.......

High Yield But Its by The Ad Hoc Anniversary Declaration

As seen in slide 6, 9.3% of K REITS dividend is outside of its 100% payout ratio. It is funded by a 20 mil Anniversary Distribution. This means the REIT has been borrowing more in order to fund its dividend. This is not sustainable

If anyone remembers history, it is similar to what happened to Keppel Pacific/PRIME US/Manulife US, these REITs were paying 100% in payout ratio and doing CAPEX by increasing its leverage. Keppel REIT is doing the same now, ironically 2 out of these 3 REITs were part of the Keppel family group.

To add icing to the cake, it is growing its leverage by paying more than 100% payout to finance its 5.6 cents dividend. This is not right. Its real sustainable dividend is only 5 cents.

Cap Rate Used by Keppel's Valuer Are Too Optimistic

Stop of saying fraud, I notice Keppel's valuer are using cap rates of 3.15% to 3.55% for its Singapore Office Properties. That is too close a margin to cut. Any mishaps in the Singapore Office property space and cap rates will have to be adjusted upwards. It leads to the cascading effects of lower valuations and in turn the risk of breaching MAS's leverage limit. 

Why US Office REITs in SGX

Simple, the US Office REITs of KORE and PRIME have lived through a storm and are still alive with re financing. In terms of capital returns + dividend, should US Office SGX REITs resume their dividend payout, they are likely to best Keppel Singapore REIT in capital + dividend gains.

I am willing to bet on it. Given the risk reward ratio, overseas office REITs are going to be a better investment vehicle than Singapore's office REITs. 

Positive on US Office SGX Listed REIT; Dividend Should Resume in 2026 and 2 REITs May become 10% Dividend Yielders

Interestingly, Straits Time has released an article on the positivity of the US Office REIT space.

Similar to them, I had been positive for a while. This was mainly due to the successful refinancing of all 3 SGX US Office REIT of their debt. This removes one key re-financing risk. Of course, Manulife US (MUST) refinancing as part of the proposal, has to start selling US office buildings from a position of weakness amid vacating tenants in both Penn and Diablo Buildings. 

Positive- Refinancing Done, 10% Dividend Resume 2026

Despite the high leverage of the US Office REITs (due to high cap rates used), refinancing of their debts were confirmed in 2024. My main investment, PRIME US, has refinanced albeit at a higher margin + SOFR.

With cashflow secured, my view is in 2025 both KORE and PRIME US will continue to use their rental cashflow to pay down debt. As what the REIT managers have guided, 2026 will be when dividends are restored. Personally, KORE and PRIME will declare 2.0-2.5 US cents in annual dividend. This will make them 10% dividend yielders.

Unitholders in current situation are likely to be sitting on a dividend windfall if the REIT managers execute to the plan.

It is possible for these REITs to sustain such high rates because their in-built cap rates are of a blended average of 6-7% for their office buildings; as opposed to Singapore office buildings which uses cap rate of 3.2%-3.8%. Due to the higher cap rate used by US Office buildings, the yield obtained by these REITs are higher and explains why they can become 10% dividend yielders in 2026.

A stronger balance sheet, resumption of payout and thus we should see 10% dividend for KORE and PRIME US unitholders if bought at current prices. KORE's leverage is below 45% and has the higher chance to resume payout in 2026. PRIME US is stil delevering and should still resume in 2026; though I truly hope there is no EFR on the pretext of delevering and buying an office building.

Next Positive- Growth of Occupancy Rate

US's work from home culture had resulted in occupancy rate for PRIME and MUST to fall to below 80% on a whole of portfoilo basis. For PRIME US REIT, I am confident occupancy rate will grow from 80% (3Q2024) to at least 85% (4Q2025).

This is mainly due to the return to office orders that is happening across USA now. Aided by the demolition of older and Grade B office buildings, a higher occupancy rate means higher revenue, this trickles to higher NPI and distributable income.

While others would tell me to bet on all horses, I have done my research and am betting on only 01 horse. In my view, it is likely the one who will benefit the most is PRIME with the youngest office portfolio. For now, I will hold on to my 470,000 shares in PRIME US REIT and be monitoring when "business as usual" dividend can be restored. 

KORE is a close second for me to buy but at 22.5 cents, KORE expected yield is only 11%; if KORE is down to below 20 US Cents, I would be an investor. PRIME on the other hand is likely to be a 12-13% yielder at current price, hence why i feel PRIME is a better buy. However both KORE and PRIME US looks like very good purchases for 2025. While readers would point to them as REITs which are weak, it is possible when cap rates fall, their leverage ratio will be the same or lower than their Singapore peers and yet give high dividends. This will be when a re-rating occurs.

Portfolio for Jan 2025

Jan 2025 saw a few changes. I have sold a few of Asian Pay TV Trust shares upon news of its refinancing and purchased Nanofilm and Alibaba shares.

In addition, I have re-bought shares in Yanlord Land. Yanlord is a special play because it is holding valuable Singapore properties. Its share price has taken a beating over the fear of a potential China Vanke collapse. My view is that if Yanlord is able to survive the current China Real Estate Downturn (90% of its business is in Real Estate China), it should experience a re-rating upwards from its current 0.2 times book value. This too may involve partial monetisation of its Singapore assets which will be a plus point.

Dividend Update

As none of the company in the portfolio have reported end of year results, no dividend is received. More company coverage will happen in February as and when they report results. Expected yield is about 5% for 2025.

Composition

Due to the slight increase in share price of Yangzijiang Financial and PRIME US REIT, the rest of the stocks has reduced in percentage. As usual my exposure to China is relatively high at about 55% of the portfolio.

The portfolio has a value of about $691,500.

Why Most Overseas Listed SGX REITs will Make you More Money than Local REITs

While investors are hunting for yield, what many do not realise is that our local REITs are not strong choices to earn income, what's more many of these Singapore properties are valued at very high and optimistic rates that if something bad occurs, many of these REITs will breach MAS regulations and are unable to borrow further.

Let's use an example of Suntec REIT to explain.

Concept of Capitilisation Rates ("Cap Rate")

Cap Rate is an important concept when it comes to understanding a REIT. It is used as the discount rate to present value the expected future income received of a building to today. Roughly Building A which is valued at 4% as cap rate will be double the value of building B which is valued at 8% cap rate, even though both Buildings A and B have the same amount of rental income earned.

Hence, the higher the cap rate, the lower the value of the building. It is similar to the idea of dividend yield. If investors expect a certain company to give a high dividend yield, its share price will be pushed very low until the expected high dividend yield is achieved. 

Suntec Example

Suntec owns office buildings in Singapore, Australia and UK. And from its latest report (see slide 59 and 60), the cap rate for the office buildings in the 3 countries are 3.4%, 6%, 5.5% respectively. 

As to why Suntec has been able to give high dividends relative to other Singapore office REITs; besides due to leverage, the main reason is because it has bought overseas office buildings with a high yield (high cap rate). While people would point that cap rate is determined by the location of a building, it is worth noting all Suntec's office properties in the respective countries are in the heart of major cities. Location wise, all these properties are Prime real estate. What differs is the cap rate used in each country.

The other reason is that Singapore, relative to other developed countries, uses a very low risk free rate because our interest rates are suppressed. But this explains why Singapore investors should not park our money in Singapore but move it overseas because we will get better returns as Singaporeans.

Overseas SGX-listed REITs

This brings me back to the overseas SGX-listed REITs. Due to their nature of business being not in Singapore, they have to use cap rates which are much higher than what Singapore buildings use. Hence while their property seems low in value, in fact they may be yielding more rental income than their Singapore counterparts. 

As REITs are required to pay at least 90% of income to gain tax benefits, in time to come, overseas REITs in the SGX will give a large amount of dividend to unitholders. Granted, in some countries like  the US office space, these REITs are now in a crisis of confidence phase beacuse high cap rates used means their building are lowly valued which in turn makes these REITs highly geared; however, once the crisis has come to pass and these REITs resume giving dividends. Due to the high cap rate used by their valuers now, future dividend will be high.

A few REITs like United Hampshire US and Elite UK have continued to give dividends and they have been giving relatively higher yields to Singapore Unitholders.

I have noticed this and instead of investing in Singapore REITs, I am now buying SGX-listed overseas REITs. 

As said, I will be recording the dividends, so investors will start to see via my quarterly logging, how much these overseas REIT are declaring as dividend relative to the local SG REITs. 

I believe the difference in amount will be staggering. Of course, using my limited knowledge, I have chosen to pick the supposedly stronger few who will survive the overseas property crisis now.

<Vested in UnitedHampshire and PRIME US REIT>