Due to the interest rate differential between Singapore and the rest of the World, overseas REITs listed in the SGX are now valued at a much higher dividend yield than that of local REITs. To add to that, the Sing Dollar has appreciated to make the purchase of foreign assets palatable.
Stronger Balance Sheet Overseas REITs
For many overseas REITs listed in the SGX, most are exposed to the commercial real estate which globally is experiencing a tenant recession/downsizing. However, 2 REITs (Keppacoak and Elite Commercial) are reporting strong tenancy that is above 90%.
Elite Commercial REIT has just done a round of equity raising to strengthen its balance sheet. This has improved its financial standing when meeting creditors. Keppacoak, on its own, has a balance sheet that is lower leveraged and of a higher interest coverage than many Singapore local REITs. My view is that both REITs have a high percentage of survivial and are of the same level as the blue chip REITs.
In terms of dividend yield, Elite is yielding at 11% while Keppacoak is at 12.5%. These are of a much higher yield and worth the forex risk. Compare that against the local commercial REITs of 6-8% yield, that is a 5% yield differential to earn each year.
Sing Dollar Appreciation
The Sing Dollar has been appreciating against the USD and SGD. However, I feel the difference in yield for these less risky REITs are worth it. Granted the Sing Dollar may appreciate about 1% per year, but I am getting 5% more in dividends per year. This translates to the likelihood of a nett positive return.
Therefore, the theme for 2024 investment will be exchanging Sing Dollars into British Pounds or US dollars to buy these 2 REITs. What makes it even better is that the Sing Dollar has appreciated to an all time high which makes purchase of assets cheaper; same as how Singaporeans travelling to Malaysia and Japan have been shouting that food and items there are cheap. I would say even foreign investments are now cheap to the Singapore investors and it is time to use the strong Sing Dollar to buy.
Taking More Risk
There are riskier REITs such as PRIME US REIT which has a higher leverage close to MAS's regulatory limits. The yield of the REIT is at 20%, which is juicy. However, there is a high risk that the REIT will need to do an equity raising (similar to Elite Commercial) so as to be on a better financial standing when talking to lenders.
I think Cromwell > 10% yield is safer than the rest of the foreign reits in SGX
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