Following from my portfolio update, I am now stuck in a dilemma.
On one hand, while I am thinking to add UnitedHampshire US REIT (at 9% yield), I have come across a local REIT called Lend Lease Commercial REIT, it is a mid cap REIT which owns 02 Grade A buildings in Jem and 313@Somerset. Its occupancy in Singapore is a solid 99.9% with the Ministry of National Development being on a long term lease with rental escalations of about 2.5-2.6% annually.
Lendlease Commercial REIT is currently at 51 cents with a dividend of 3.6 cents, giving it a 7% yield.
Why am I torn over it, Compared to my Current Holdings
Lendlease has a good 7% yield with very good assets in Singapore. In a way, barring recession, Lendlease is a dividend stock with growing dividends, its cost of debt is falling due to the falling Singapore SORA rate. I believe this stock will give 4 cents dividend in a few years time as interet rates keeps falling. (Lendlease cost of debt is 3.57%, while SORA is at 2.3%; likely lendlease cost of debt will fall to 3.2%). I expect lendlease DPU to be up 10% due to the falling SORA rates.
I am not bothered by the high gearing of Lendlease because the REIT is mostly backed by Singapore assets. As the saying goes, Singapore property prices will only go up or stay flat, the government does not dare to deflate property prices.
On the other hand, United Hampshire US REIT has a lower occupancy rate but is in a totally income inelastic segment as opposed to Lendlease whose shop tenants are across the specturm (but of course not as many luxury tenants as seen in Paragon or Starhill Global REIT).
Strong Occupancy in Singapore and Improving Occupancy in Italy
Lendlease has a "building no 3" in Milan which it is trying to lease out after the return of the building by the main tenant. With improving occupancy, this will improve the net property income (NPI) of the Italy office complex.
Second, Lendlease has in built rental esclation for its Singapore Shopping malls and Office towers. This means higher NPI in time to come. This is why I foresee Lendlease will become a growing dividend REIT stock over time.
Extra Funds to Deploy for My portfolio
Right now, I am thinking between Lendlease REIT and Utd Hampshire US. The former has a strong tenancy and occupancy with a Singapore ministry being its largest tenant who will not default on its remaining 20 years lease. The REIT sports a 7% yield with a strong tenant base. On the other hand, if I take the latter, the tenancy profile is weaker and has exchange risk, the benefit is that I get a 9% yield.
The other thing I have to note is my portfolio concentration; with Utdhampshire being a large part of my portfolio, buying more of it puts me into a concentration risk.
Quite a weekend to think where to deploy my extra funds!
