Financial Adviser: 5 High-Yield REIT Stocks to Fight Inflation and How to Profit from Them
The Philippine Statistics Authority (PSA) recently reported that the national inflation rate has accelerated to 4.9 percent in April, the highest in three years.
Inflation rate began to pick up last March when it increased from 3.0 percent in February to 4.0 percent due to rising prices of oil and commodities overseas.
The latest inflation result was more than expected, prompting the market to speculate that growing supply problems may increase inflation further until next year.
Rising inflation means higher interest rates, which may hurt the stock market as investors shift their funds to less risky, fixed income securities.
The current weakness in the market, however, offers also a good opportunity to lock-in higher dividend rates from dividend paying stocks, especially Real Estate Investment Trusts or REITs.
Unlike regular stocks, REITs tend to move in the same direction as inflation because REITs adjust their rental rates upwards by 5.0 to 10.0 percent every year.
The higher earnings resulting from annual rental adjustments enable REITs to grow their distributable income stream that support higher yield and stronger price appreciation in the long-term.
Just as investing in real estate assets, it is always good to know the fundamentals of REIT so you will have a better handle of the risk and return you can expect from investing in REITs.
Here are the five highest yielding REITs that can help you fight rising inflation this year:
1| Citicore Energy REIT
Citicore Energy REIT (PSE: CREIT) is the first renewable energy REIT in the market, which leases out five properties to operating solar power plants owned by its sponsor, Citicore Renewable Energy Corp (CREC).
CREC is the third largest power generator in the Philippines and majority owned and controlled by construction magnate Edgar Saavedra of Megawide Construction Corporation (PSE: MWIDE).
CREIT is expected to acquire two more properties in Bulacan and South Cotobato after it completed its initial public offering last February. The addition of the two properties will comprise about 22 percent of CREIT’s total rental revenues, which should support its target dividends of P1.1 billion this year.
CREIT enjoys a strong balance sheet with zero debt. Its post-IPO stockholders’ equity of about P4.2 billion should allow it to have a potential credit line of P6 billion, assuming debt-to-equity of 1.5 times, to help it expand its portfolio in the future.
CREIT share price has fallen by 13.3 percent since its IPO from a high of P2.93 per share to P2.54 today. At target dividend of P0.18 per share, CREIT’s dividend yield stands at 7.1 percent, the highest in the sector.
2| DoubleDragon Properties REIT
DoubleDragon Properites REIT (PSE: DDMPR) has a property portfolio consisting of three income-generating commercial buildings located inside 4.75 hectare-mixed use development DD Meridian Park in Bay Area, Manila.
The three income-generating properties, which have a total gross leasable area (GLA) of 172,252 square meters, have an average occupancy rate of over 95 percent.
DDMPR is 70-percent owned and controlled by DoubleDragon Properties (PSE: DD) of business tycoon, Edgar “Injap” Sia and 30 percent owned by the Yujuico family. It is the only REIT company in the market that also owns the land where its buildings are located. The land value of DDMPR is expected to surpass the value of its buildings in the future.
DDMPR has remained debt-free to date with book value per share of P2.30 per share, which offers 32-percent discount to its current share price. It expects to acquire the recently completed DoubleDragon Tower once it starts its turnover to clients in June this year, which should increase its rental revenues significantly.
DDMPR’s share price has fallen 35 percent from its high of P2.40 during its IPO in 2021 to its current share price of P1.56 per share.
Based on DDMPR’s dividend payments for the past four quarters at P0.103 per share, current dividend yield of the stock stands at 6.6 percent.
3| Filinvest REIT Corp
Filinvest REIT Corp (PSE: FILRT) has a portfolio of 17 highly occupied office buildings inside Northgate Cyberzone IT Park in Filinvest City, Alabang.
FILRT’s 17 fully operational, Grade A office buildings have an aggregate size of 299,159 sqm GLA and 2,204 sqm of retail area with an overall occupancy rate of 90.3 percent.
FILRT is majority-owned and controlled by Filinvest Land (PSE: FLI) of the Gotianun Family, one of the leading property developers in the country. It enjoys a relatively strong balance sheet with debt-to-equity ratio of one is to one by end of 2021.
The share price of FILRT has fallen by 8.5 percent from its high at P7.99 per share last year. It is currently trading at 19 percent discount to its net asset value of P9.02 per share.
Based on FILRT’s total dividend payments from the past four quarters of P0.452 per share, current share price offers a dividend yield of 6.2 percent.
4| MREIT, Inc
MREIT, Inc (PSE: MREIT) has a portfolio of 14 PEZA-registered commercial properties with a collective GLA of 280,000 sqm located in Metro Manila area and Iloilo City. Its building portfolio has an average overall occupancy rate of 93.2 percent and average lease of 4.7 years.
A bulk of MREIT’s tenants comes from the BPO and traditional office sector, which occupies 89.9 percent of its total GLA. The balance of 10.1 percent comes from retail and hotel tenants.
MREIT, which is majority-owned and controlled by Megaworld Corporation of property magnate Andrew Tan is looking to acquire more assets this year with additional GLA of 44,300 square meters.
MREIT share price has fallen 24.5 percent from its high of P23.4 per share and is now trading at 11 percent discount to its net asset value of P19.92 per share.
At current share price of P17.66 per share against trailing dividends of P0.9629 per share, MREIT’s dividend yield stands at 5.5 percent.
If MREIT goes back to its IPO price at P16.10 during this market volatility, dividend yield can go up to 6.0 percent, which should offer a good buy.
5| RL Commercial REIT, Inc
RL Commercial REIT, Inc (PSE: RCR) has a portfolio of 14 commercial properties with a total collective GLA of 425,315 square meters, the largest office building REIT company in the sector.
About 70 percent of RCR’s commercial properties are located in Metro Manila, while the balance of 30 percent located in Cebu and Naga Cities.
RCR’s building portfolio has an impressive overall occupancy rate of 99 percent and average lease of five years.
A bulk of RCR’s tenants comes from the BPO sector, which occupies 68.9 percent of its total GLA. Its second-largest tenant group, the traditional office sector, takes up about 19.4 percent for a total of 88.3 percent.
RCR, which is majority-owned and controlled by Robinsons Land Corporation (PSE: RLC) of the Gokongwei family, enjoys a strong balance sheet with zero debt ratio.
RCR recently announced that it is acquiring two more properties from its sponsor RLC this year. The two office properties, Cybergate Bacolod and Cyberscape Gamma, which have a valuation of about P7 billion, will add a combined GLA of 55,000 square meters.
The acquisition is expected to increase RCR’s total asset size by 13 percent to 480,000 square meters, which should help boost the company’s earnings and distributable income this year.
RCR is currently trading at a premium of 25 percent to its net asset value of P5.89 per share. Its share price has fallen 17.6 percent from a high of P8.94 per share. At its current share price of P7.36 against a projected dividend of P0.38 per share this year, the stock’s dividend yield stands at 5.2 percent.
Given the market volatility in the coming weeks, a fall by the stock to its recent low at P6.44 per share will increase its dividend yield to 6.0 percent.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888