The Singapore REITs landscape is changing.
Many Singapore REITs are combining themselves to become bigger.
Become more competitive.
And what’s more, I’ve observed, is many are transforming themselves.
One notable change I’m seeing in Singapore REITs — they are diversifying into other sectors within their portfolio.
Let me explain.
Singapore REITs are adapting to a fast-changing environment.
These are three Singapore REITs I’m seeing transforming themselves for higher gains.
Singapore REIT #1: Ascendas REIT
Ascendas REIT needs no introduction.
This is the largest industrial REIT in Singapore.
It owns 200 properties across developed markets including Singapore, Australia, U.K. and the U.S. — a total value of S$13.7 billion.
I’d say Ascendas REIT diversifies well across its portfolio.
But it’s not stopping there.
Ascendas REIT is quick to adapt to the ‘online’ revolution.
You see, Ascendas REIT sees itself not only as a ‘distribution of physical space’, but a distribution of data — it is growing its portfolio of data centres.
In fact, Ascendas REIT recently bought 11 European data centres worth S$960 million.
You can read more about it here.
These are located in top data centre markets — London, Amsterdam and Paris.
And there’s a huge demand for these specialized buildings.
That’s why all of its data centres are close to full occupancy.
Data centres tend to be rented out on a “triple net lease”.
A “triple net lease” means the tenant pays for all the property expenses, taxes and insurance.
And Ascendas REIT gets to keep more of the profits. And reward more dividends to unitholders.
What’s more interesting is this.
Ascendas REIT is also converting many of their older industrial buildings into “Hi-Tech” Parks.
These newer industrial buildings rent out to more technology- and R&D-intensive companies.
For example, a fast food tenant could run their R&D on improving their food products — burgers and fries.
This is different from older manufacturing and engineering companies Ascendas REIT mainly rent out to.
Data centres and “Hi-Tech” Parks now take up 15% of Ascendas REIT’s property portfolio.
Singapore REIT #2: Ascott Residence Trust
Ascott Residence Trust is the biggest Asia hospitality Trust.
I write in detail about this iconic business.
After the merger with Ascendas Hospitality Trust in 2019, it grew even bigger.
Globally, Ascott Residence Trust is the eighth largest hospitality REIT with more than S$7 billion of assets across the world.
I’m not surprised, Ascott Residence Trust got wrecked by the COVID pandemic last year.
When global travel came to a complete halt, Ascott Residence Trust had to pull all levers to make sure they safely tide through the pandemic.
And they did.
Don’t underestimate their strength.
Ascott’s long term master leases (accounting for 62% of their gross profits) grew 21% year-on-year to S$43.8 million during the second half of financial year 2020.
These leases support the Trust’s operating cash flows.
It’s one thing to look at their current situation.
But here’s the other thing.
You see, Ascott Residence Trust is in the lodging business.
It provides both high-quality serviced residences — full suite of bedrooms, kitchen and living room — and hotels.
But this major hospitality Trust is moving into longer term rental housing and student accommodation.
This move allows Ascott to diversify their lodging business.
Rental housing and student accommodation are resilient businesses during the COVID pandemic.
And today, Ascott has positioned itself in the world’s largest student accommodation market — the U.S market.
Typically, student accommodation is rent out for at least a year — longer than tenants in a serviced residence.
In fact, Ascott recently bought a student accommodation worth US$98 million with an average 95% occupancy rate.
This property is located close to Georgia Institute of Technology — one of U.S. most prestigious colleges.
Ascott also bought three freehold rental housing properties in Japan, Sapporo for S$85 million.
Both purchases help Ascott to diversify from its traditional hospitality assets.
And move into the more COVID-resilient rental housing and student accommodation business.
Singapore REIT #3: Mapletree Industrial Trust
Mapletree Industrial Trust is shedding its traditional industrial property skin.
I last spoke about why its valuation is still expensive. You can read it here.
Well, honestly, I think Mapletree Industrial Trust’s acquisition plan is very aggressive.
And I find their aggression comes at the expense of quality.
Earlier last month, May 2021, Mapletree Industrial Trust added another 29 data centres across the U.S. for US$1.3 billion.
These data centres are located at the heart of Los Angeles, Chicago, Houston and Atlanta.
But the thing is, I don’t think these data centres’ occupancy rate is that strong — only 88% occupied across 32 tenants.
These new data centres will boost Mapletree Industrial Trust’s distribution per unit (DPU) by only 3.3% to 12.97 cents per unit.
Not a significant amount.
Buying data centres is a big move for Mapletree Industrial Trust.
This traditional industrial landlord is now turning into a data centre powerhouse.
And their target is to have two-thirds of their portfolio in data centres.
After its recent data centre purchases, data centres will make up 54% of this industrial landlords portfolio, up from 41%.
With that, Mapletree Industrial Trust’s property assets will grow to S$8.6 billion, up from S$6.8 billion in earlier March 2021.
Half of its property asset value will come from data centres.
At 4% dividend yield, Mapletree Industrial Trust is riding on the growing trend of the ‘online’ revolution.
As more and more businesses and indivudals tap on the internet, you need a physical space to store and transport all these data.
These 3 Singapore REITs are set for higher gains
These are the three Singapore REITs I’m seeing that are transforming themselves for greater profits.
If you’re starting out on your dividend growth strategy, these are the Singapore REITs I’m keeping a close watch.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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