5 Cheap REITs with Dividends that Beat Inflation

Opportunities can be found in both sector REITs and diversified REITs  

Kate Lin 10.05.2023
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Yield-chasing investors have abandoned REITs by rotating out of the sector into lower-risk income investments. The returns of some top-rated REITs may, however, exceed the CPF OA interest rate promised at 2.5% per annum. These trusts also pay yields that beat Singapore’s inflation, which is estimated to average between 3.5%-4.5% in 2023, according to the Monetary Authority of Singapore.

REITs have additional qualities that fixed deposits cannot match. REITs have capital appreciation potential in addition to offering income. Moreover, if you want to buy and maintain income properties, you’ll need lots of initial capital. But for those of us who do not have millions to spare, we can still invest and earn income from real estate through REITs. Because they trade on stock bourses, REIT vehicles are a liquid tool for real estate exposure.

We asked Morningstar analyst Xavier Lee to give us his top picks in the sector.

What Are Our Top Picks?

Below are five REITs trading at a discount to their respective fair values assigned by the Morningstar equity research team. Frasers Centrepoint Trust and CapitaLand Integrated Commercial Trust warrant a narrow Economic Moat rating.

Keppel REIT K71U

Morningstar’s top REIT pick for the quarter is attractive in two traditional REIT investment areas: valuation and income payout outlook.

Like every other REIT, Keppel feels the pinch in its distributable income amid a rising interest rate environment. However, the trust’s strong operating performance, namely an increase in net property income, partially canceled out the adverse factors in the first quarter of 2023. The REIT generates a forward distributable income of 6.8%, which beats Singapore’s inflation.

There’s more to like about this trust than its yield. One aspect is its strong operating metrics. As Lee explains, “The REIT has a high tenant retention ratio of 98% and a positive 9.3% rental reversion for the portfolio. The trust’s portfolio occupancy rate was 96.3%, the same as last quarter, while its weighted average lease expiry remains long at 5.8 years.” Rental reversion is a metric captured by some REITs to show whether new leases signed have higher or lower rental rates than before. In this case, leases are renewed at 9.3% higher than before.

Should an economic recession come, investors may also find comfort in Keppel REIT. Lee continues: “We continue to like the trust for its high-quality grade A office assets and exceptional tenant register, which includes government agencies and government-linked companies, and which can weather any possible economic downturn.”


Frasers Centrepoint Trust J69U

In Frasers Centrepoint Trust, or FCT, Morningstar analysts think its resiliency throughout economic cycles is a sought-after feature now.

While a retail REIT cannot be completely immune to economic downturns, FCT tends to be more defensive and less sensitive to them, as the trust owns malls that serve a localized and mature demand, for example, providing residents with necessities and essential services.

On the operating front, the retail portfolio occupancy rate continues to improve, which solidifies the case of investing. Lee finds that the biggest improvement came from Century Square after securing a new cinema operator to backfill the space previously vacated. Lee comments: “Looking ahead, we think the robust tenant sales growth and high occupancy rates across the trust’s portfolio is setting the stage for strong positive rental reversion and expect the trust to deliver good organic growth for the second part of the year.”



Industrial properties are another source of income. ESR LOGOS REIT owns 82 properties across Singapore, Australia, and Japan. With a wide geographical footprint, Lee thinks the trust is well-positioned for the strong secular tailwinds from e-commerce shopping, which has significantly lifted the demand for logistics and warehouse premises across the world.

“The trust’s large and diversified portfolio with well-spread lease expiry profile could underpin stable rental revenue throughout business cycles,” says Lee, who thinks this revenue stream is key to supporting the 7.68% yield.

The portfolio occupancy rate declined slightly to 92.1% this quarter from 92.7% in the previous quarter due to a nonrenewal of a general industrial tenant in Singapore. Nevertheless, we think that this is just a transitional vacancy and expect occupancy rates for its Singapore industrial properties to pick up in the coming quarters. Rental reversion numbers continue to come in strong for the trust with a positive 7.3% rental reversion.


CapitaLand Ascott Trust HMN

Another trend in global REITs is the upturn from a low base in the hospitality segments, which should give CapitaLand Ascott Trust a cyclical tailwind in the post-pandemic world.

Covering 15 countries, the SGD 8.0 billion hospitality trust focuses on serviced residences, hotels, rental housing, and student accommodation.

Lee points out a few asset enhancement initiatives that will add value to the trust for years to come.

“The selected assets for enhancements are Riverside Hotel Robertson Quay, Citadines Holborn-Covent Garden London, Citadines Les Halles Paris, and Citadines Kurfurstendamm Berlin. Overall, we are positive about the trust’s move to continually rejuvenate and enhance its assets, and we believe it helps to create long-term value for unitholders,” says Lee.


CapitaLand Integrated Commercial Trust C38U

If a single-sector REIT appears to be too niche, here’s a portfolio that diversifies across offices, urban and suburban malls, and integrated development, CapitaLand Integrated Commercial Trust.

Most of its 26 portfolio properties are located in Singapore. Lee says: “Its diversified tenant base and well-spread lease expiry profile underpin a stable earnings profile through economic cycles.” The REIT is another moat-y pick on the list.

The retail segment continues to have a strong showing as the ongoing recovery in tourism is driving shopper traffic and tenant sales growth. The trust also sees better rental reversions. Leases for downtown and suburban malls are renewed at a single-digit uptick in rent. The trust is externally managed by CapitaLand Integrated Commercial Trust Management and has a strong and supportive sponsor. Its parent, CapitaLand, retains a 23% stake in CICT.

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About Author

Kate Lin

Kate Lin  is an Editor for Morningstar Asia, and is based in Hong Kong

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