In the mid of 2000, Blackstone Group, a major investment firm completed the purchase of one of the largest US office property buyouts at US$37.7 billion.
People thought they were crazy. It was then the largest property buyout at the height of a property bubble. Yet the company profited massively from the investment.
You see, timing in the market is important. But the “smart money” like Blackstone Group knows what beginner investors lack — They know how to take advantage of properties to grow their assets.
In fact, today, Blackstone has grown and managed more than US$540 billion of assets. And much of their success lies in picking good property investments.
REITs Still the Most Stable Form of Leveraged Investing for Dividend Income
If you’re an income investor in retirement or growing your wealth for retirement, you want to think like a Blackstone.
At its heart, a REIT is an asset class full of value. And it’s a wonderful way for everyday investors to grow their wealth safely through properties.
Just like how Blackstone made money on their basket of property investments.
Yet many investors’ behave as if they don’t know this asset class. When a recession hits, they sell off some of the most valuable assets in their portfolio. Just look at the recent Singapore REIT performance in the chart below.
Source: Singapore Exchange
You see, a REIT, like any other property investing, has a very simple business model. And it’s what I like to call a “virtual bank”.
Let me explain.
A REIT borrows cheap, short-term debt from the bank, and invests into “long-term”, high-yielding properties like retail and office buildings.
If you invest in a REIT, you get to keep the rental income a REIT collects as dividends. While waiting for the property’s value to grow.
This makes REITs the most profitable and stable form of leveraged investing. Especially if you want to retire with a dividend portfolio.
Pandemic or Crisis… REITs Are a Dividend Machine
Now, I’m writing this because REITs have performed poorly because of the whole pandemic crisis.
And I want to share with you what I think are the best Singapore REITs out there.
Actually I used to be a bonds analyst checking out which companies wouldn’t go bust. And I applied this rigorous research to REITs, to make sure their dividends don’t go bust over the long run.
Especially if you’re building an income portfolio for retirement.
So, if you want to invest in a REIT, you need to make sure they’re the best. And they can survive an extended crisis.
Best Singapore REIT No. 1 — CapitaLand Integrated Commercial Trust
Market Cap: SGD13 billion
Forward Dividend Yield: 6.20%
CapitaLand Integrated Commercial Trust, or CILT, after the merger of CapitaLand Mall Trust and CapitaLand Commercial Trust, is the biggest REIT in Singapore.
It’s also the third largest REIT in Asia.
And it’s interesting, you see, a particular group of Singapore REITs undergoing major shifts.
For one, you’re seeing REITs owning more and more mixed-development sites — combining both retail and commercial spaces into one area.
This makes a lot of sense here, especially with a limited land supply in Singapore. Many properties have to become more efficient to provide people with a convenient “work-life-play” environment.
Another is this — with the pandemic crisis ongoing, having a mix of retail and offices properties allow some sector diversification.
While everyone is aware of the supposedly “REIT Armageddon”, shopping malls are wrecked by the new normal of “work from home”. And a lot of people are sticking to shopping online.
But that’s only half the story told.
CILT: A “Recovery” Dividend Stock
A lot of retail malls are still very much in huge demand in the suburban area.
With Phase 2 out, CILT’s retail properties foot traffic have already recovered to 60% of pre-pandemic levels.
What’s more interesting is this.
Tenant sales have recovered to 90% of its pre-pandemic levels.
And many the REIT is still able to lock in tenants, with occupancy rates close to full. These suburban malls are a very good catchment area for the local population living away from the city centre.
You see, many people still enjoy shopping in these heartland areas. Usually, making their grocery shopping. In fact, CILT retail malls’ supermarket sales have gone up by 9.6% year on year. In the latest quarter, home furnishing, sporting goods, electronics all seen an increase in sales.
Its worst hit is Raffles City Singapore, which saw a major drop in rental reversions. But that’s because Raffles City is located in the city centre.
Of course, CILT’s also the largest owner of Grade-A prime assets in Singapore’s CBD. These top office spaces are well occupied by some of the biggest, profitable companies in the world. From banks, to tech, to aviation and commodities companies.
While most people are working from home, these companies still retain their tenancy with the properties. You’d see that all of its properties are still well-occupied.
Sometimes, investing can be simple.
Best Singapore REIT No. 2 — Ascendas Real Estate Investment Trust
Market Cap: SGD11 billion
Forward Dividend Yield: 4.56%
Ascendas Real Estate Investment Trust is traditionally Singapore’s largest industrial REIT.
But recently, you’d see Ascendas diversifying its “property mix”, moving into “business & science” parks. Which has done very well for them.
You see, these properties are home to some of the biggest, most stable companies in the technology, financial and biomedical sectors — DSO National Laboratories, DBS Bank, Singapore Telecommunications and J.P.Morgan Chase Bank are some of their biggest tenants.
This allows them to capture companies at the forefront of technology, finance and biomedical science.
And not one single tenant takes up more than 5% of Ascendas’ gross rental income.
This is important here. Because Ascendas does not have to rely on any tenants to grow. If anyone decides to leave, Ascendas can easily fill up its space without worrying about crushing its rental income.
This diversification makes investing in Ascendas REIT safe.
In fact, during the pandemic crisis, only 9 tenants out of its over 1,400 tenants have pre-cancelled their leases.
And they still managed to maintain at least 91% occupancy rate.
With Ascendas’ track record of accumulating high quality properties, it shows in their financial results.
Ascendas’ Financials Staying Strong
Ascendas’ 1H2020 gross rental income grew 14.6% from SGD455 million to SGD521 million. Its total distribution was higher by 3.7% to SGD263 million during the same period.
Ascendas’ continues to gush free cash flow (FCF). In fact, FCF grew from SGD35 million in FY2004 to a massive SGD612 million in FY2019. Note: FY2019 results account for 9 months of rent, due to a change in financial period ending from Mar to Dec.
If you’d held Ascendas since its IPO in 2002, you’d have made more than 500% (as at Dec 2020) on your capital, including dividends. That’s returns of close to 11% per year.
I’d note it has SGD2 billion worth of pipeline from its Sponsor, CapitaLand Ltd and redevelopment opportunities worth SGD360 million. That makes Ascendas’ growth predictable.
Ascenda’ balance sheet remained very healthy, with a low gearing ratio of 35%. In my opinion, Ascendas has plenty of firepower to buy more properties. It can borrow debt safely, and cheaply because of the REIT’s very strong credit quality.
The biggest risk for Ascendas comes from its food and events-related tenants. That’s why its logistics & distribution centres, and “high-specification” industrial centres rents suffered.
These tenants were affected by the pandemic, which forced Ascendas to drop its rents to retain these SME tenants.
As mentioned earlier, Ascendas’ well-diversified tenants could keep its rental income resilient. Its other segments had positive rental adjustments.
Ascendas REIT currently has a dividend yield of around 4.56%. with a current price/book valuation of around 1.4x, you’d have to pay a slightly higher premium for its overall properties’ growth potential.
If you’re a dividend investor looking to grow your retirement portfolio, perhaps Ascendas REIT is worth a buy.
Sometimes, investing can be simple.
Best Singapore REIT No. 3 — Mapletree Industrial Trust
Market Cap: SGD6.9 billion
Forward Dividend Yield: 4.05%
Maple Industrial Trust knows about the potential of the “new-age” digital economy.
And they’re preparing for it.
Its surprise move to buy 14 data centres in the US fit well into owning buildings for knowledge-intensive sectors.
And their data centres are almost fully occupied.
Today, Mapletree Industrial owns 84 industrial properties in Singapore and 27 properties in the US.
More than half of these buildings are specially designed for it’s 2,000 over tenants needing huge technology infrastructure — including the big companies like Hewlett-Packard, AT&T, ThermoFisher Scientific and ST Telemedia.
More people and companies are consuming more and more data. Be it moving into cloud or streaming videos. Mapletree Industrial is the landlord many technology-savvy tenants like telecommunications and internet companies will go to. And it’s also inline with the global shift toward adopting a “work-from-home” structure.
In my opinion, there’s strong demand for reliable, specialized buildings in developed countries.
And its numbers are showing.
While Mapletree Industrial’s 1HYFY20/21 gross rental income remained flat during the pandemic, its total distribution for 1HFY20/21 rose 14% to SGD144 million, compared to last year.
Similarly, it maintained its abundant free cash flow (FCF) of SGD104 million during the same period. In fact, its FCF continuously grew from SGD132 million in FY2011 and more than doubled to SGD287 million as of March 2020.
Now, since its listing in 2010, Mapletree Industrial steadily grew its distribution per unit (DPU) from 3.45 cents, to 12.24 cents during its latest FY19/20. Distribution per unit is what unitholders could collect as dividends.
So far, its stock performance has rewarded unitholders well.
Mapletree Industrial’s Stock Performance at Top Speed
In fact, in my opinion, you’re sitting on the best performing Singapore REIT, if you’d bought Mapletree Industrial since IPO. Its stock made its unitholders close to 15% annual returns on their capital, including dividends (as at Dec 2020).
You see, the REIT has a knack for picking solid, high quality assets.
And these assets have proved to provide a stable, growing form of income for its unitholders.
With the massive rise of traffic data, income growth will come from both its data centres and “hi-tech” buildings.
Mapletree Industrial’s balance sheet is strong.
Its gearing ratio is around 38%. This gives the REIT plenty of room to grow. What’s even better is this. Mapletree Industrial gets to buy all the good properties from its strong sponsor, Mapletree Investments.
But the biggest problem Mapletree Industrial is facing now, like Ascendas REIT, is its large SME tenant base. 40% of its portfolio are SME tenants, and many have suffered during the pandemic crisis.
So far, Mapletree Industrial could control its rental arrears to about 1.4% of its past 12 months gross rental income. And 90% of its tenants have resumed operations after the Circuit Breaker (7 Apr to 1 Jun 2020) period.
Today, Mapletree Industrial has a current dividend yield of around 4.05%.
And if you’re a dividend investor looking to build your retirement portfolio, perhaps this is one stable industrial REIT worth a buy.
Sometimes, investing can be simple.
Best Singapore REIT No. 4 — Mapletree Logistics Trust
Market Cap: SGD7.9 billion
Forward Dividend Yield: 5.47%
When you buy “stuff” online, it takes a couple of days, or weeks for the items to reach your home.
And big e-commerce companies like Lazada, Shopee, or even Watsons first need to put the products in warehouses, before it gets delivered to you.
You see, Mapletree Logistics Trust is responsible for taking care of all the different types of daily essential products — like food, drinks and healthcare products before it gets delivered to the end customers.
And Mapletree Logistics manages these warehouses in some of the 146 properties it owns across Asia. Close to 700 of their tenants are mostly in consumer-related sectors, selling daily essentials.
That’s why there’s a huge need to store all these items.
Mapletree Logistics Riding on the E-Commerce Wave
With the rising trend of e-commerce, especially during the pandemic crisis, it’s crucial Mapletree Logistics continues to provide their tenants with the best logistics facilities.
Mapletree Logistics’ 1HFY20/21 gross rental income grew 9.4% to SGD264 million, compared to a year ago. Its total distribution to unitholders grew 6% to SGD156 million during the same period. And this was due to higher rent adjustments from many of its properties.
Mapletree Logistics Trust has been well managed. It could grow its distributions or net earnings from SGD10 million in FY2005 to SGD302 million as at FY2020. Its free cash flow has been massive, hitting SGD370 million as of the latest financial year results.
This is largely due to its high quality properties and the ability to have cheap borrowing costs.
And management is happy to maintain its gearing ratio — which is 39.5%. This means they can continue to grow more properties, before they hit the 50% gearing limit set by the MAS.
One major risk is Mapletree Logistics’ largest tenant — CWT Group, which remains its largest Singapore tenant, at 8.6% of the REIT’s gross rental income.
You see, CWT Group defaulted on its bank loans early last year. But, so far, the company still has committed to pay rent to Mapletree Logistics.
With a diversified portfolio of properties and tenants, even if CWT Group decides to pull out, Mapletree Logistics should have no trouble finding new tenants.
If you’re a dividend investor looking to build your retirement portfolio, perhaps this is one stable industrial REIT worth a buy.
Sometimes, investing can be simple.
Best Singapore REIT No. 5 — Ascott Residence Trust
Market Cap: SGD3 billion
Forward Dividend Yield: 5.33%
Ascott Residence Trust is focused on serviced residences, hotels, business hotels and rental housing. Short term or long haul stay.
And its properties are located across key, developed markets, including China, Japan, UK and the US.
Following its merger with Ascendas Hospitality Trust in December 2019, Ascott’s portfolio is worth more than SGD7 billion, with 88 properties more than 16,000 units across 15 countries worldwide — including China, Japan, UK and the US.
While the pandemic has put all travels to a stop, Ascott Residence’s long term outlook is still very bright.
Ascott Residence Positioned for a Major Travel Rebound
You see, travel demand can never go away. Think about how globalized today’s world is.
And hotel giant Marriott knows this. It recently announced plans to open 40 to 50 new hotels in Asia and another 100 next year as it expects travel to recover gradually.
You see, the concern really, is not the lack of demand for travel in the long run, but the severe cash crunch managed by these REITs.
Even though Ascott Residence suffered a huge drop in gross rental income, its master lease and management contracts have continued to support REIT through the pandemic crisis. These contracts provide a very steady, 50% of the REIT’s gross rental income.
Its financial position is strong. Ascott Residence recently refinanced all of its debt in 2020, and has maintained a very low borrowing cost of 1.8% per year.
Ascott Residence knows it has the money — with SGD305 million in cash, and SGD550 million of bank credit facilities, to be drawn anytime.
The REIT has a very low gearing ratio of 34.6%, meaning it still has a lot of room for growth too.
If you’re a contrarian income investor looking to bet on a huge rebound in travel, perhaps Ascott Residence is one stock you want to be looking at.
Sometimes, investing can be simple.
Best Singapore REIT No. 6 — Frasers Centrepoint Trust
Market Cap: SGD3.9 billion
Forward Dividend Yield: 5.15%
You’d probably know most of the retail malls were wrecked during the pandemic crisis.
But here’s where the real difference lies for Frasers Centrepoint Trust.
The truth is, the ones getting crushed by the pandemic are the malls located in the city centre.
Why? Because, in my opinion, they’re usually made up of the office crowd and tourists. Which now have mostly disappeared.
But, demand for retail “heartland” shopping still exists even during the pandemic. And Frasers Centrepoint owns all these “heartland” malls.
Frasers Centrepoint is a Heartland Mall Dominator
You see, many of the REIT’s malls are well located in Singapore’s suburban areas. Where it captures the local residential population.
When the Singapore government announced Phase 2 of Circuit Breaker, many shoppers in fact, returned to these heartland malls.
And these malls have stabilized to 60% to 70% of the pre-pandemic level.
Think about it. If you’re still working from home, you want to quickly head to a nearby place to grab food or buy any last minute “daily essentials”. Or if you’d want to get out for a walk, the most convenient place to go is your local heartland mall.
I know Frasers Centrepoint’s latest 2H2020 (Apr to Sep) results were poor. Gross rental income and net earnings were down 32.5% and 61% year on year respectively. But I’d say, Frasers Centrepoint is suffering temporary pain.
Its mall occupancy rate is still around 95%.
And this is important here. Because, what these retail malls are lacking isn’t shoppers demand, but the ability to ride through a crisis.
Now, Frasers Centrepoint has a very strong balance sheet. It still maintains a high quality “investment grade” credit rating during the pandemic. Which means it can refinance and borrow debt at a cheap cost.
Even better, it’s what makes it have a high interest coverage ratio of 5x.
You see, its recent purchase of the remaining 63.1% of AsiaRetail Fund is the right move for this heartland dominator. Frasers Centrepoint is eventually going to capture the returning wave of shoppers.
AsiaRetail Fund currently owns five Singapore heartland malls — Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1. All located near the MRT station and command high foot traffic.
And these malls are in areas where there are limited or no big competing shopping malls around.
This means, in the long run, Frasers Centrepoint gets to enjoy heartland dominance.
Sometimes, investing can be simple.
Best Singapore REIT No. 7 — Keppel DC REIT
Market Cap: SGD4.56 billion
Forward Dividend Yield: 2.90%
Keppel DC REIT is a specialized SGD4.8 billion real estate investment trust.
Unlike the other Singapore REITs, Keppel DC is the only “pure-play” data centre REIT to be listed since 2014.
Today, Keppel DC has 18 data centres, mostly in Asia. 6 of its data centres are in Singapore.
Now, data centres are huge, dedicated spaces for high-powered computers. These systems run massive amounts of data every second — from streaming online videos to surfing your social media.
And digital content is growing.
That’s why most of its tenants are internet companies, telecom operators and IT services.
Because there’s so much demand for data traffic now, tenants need to make sure these spaces have specialized, reliable equipment like cooling systems and infrastructure to make sure nothing goes wrong.
You see, Keppel DC knows it’s going to benefit from the massive growth in the new digital economy. People are going into cloud adoption, artificial intelligence, 5G advances, and the “Internet of Things”.
In fact, in my opinion, all of these are expected to grow at least double-digits over the next 10 years.
According to management, data centre spending in Asia Pacific is expected to exceed US$30 billion by 2023. That’s going to account more than 30% of the global market.
Keppel DC Growing at Breakneck Speed
So far, the digital tailwind has rewarded the REIT very well. In 3Q2020, gross rental income exploded 46% year over year to SGD67.7 million. From Jan till Sep 2020, Keppel DC has collected SGD192 million of gross rental income. That’s up a huge 35% year over year.
Since its IPO, Keppel DC more than tripled its free cash flow from SGD34 million to SGD113 million just last year. This allowed it to reward growing dividends to its unitholders year after year.
Now, 70% of Keppel DC’s gross rental income has a shorter, 3 years lease. This gives Keppel DC more room to adjust for higher rents to capture the growing demands for data centres.
Even with its huge growth, Keppel DC maintains a healthy financial position. Even banks know of its very high quality assets — and are willing to lend them at a very low borrowing cost 1.6% per year.
This is what makes Keppel DC maintain a very high interest coverage ratio of 13x.
Since its gearing ratio is only at 35%, it has much room to grow its acquisitions.
In fact, it recently completed its acquisition at Keppel DC Dublin 1 and Kelsterbach Data Centre in Germany in March and May 2020 earlier this year.
Both properties command a high occupancy rate of 81% and 100% respectively.
One key risk for Keppel DC is the growing competition with other data centre providers globally.
Management has been very careful with acquisitions.
If you see, Keppel DC’s properties are all fully occupied, or undergoing some form of renovation to improve its occupancy rate. Only its Basis Bay Data Centre has a low occupancy rate of 63%.
But, so far that’s a tiny contribution to its overall rental income.
Sometimes, investing can be simple.
Best Singapore REIT No. 8 — Parkway Life REIT
Market Cap: SGD2.34 billion
Forward Dividend Yield: 3.62%
Developed countries often face one big, common problem.
An ageing population.
You see, Japan has the highest old-age dependency ratio of all OECD countries. 1 in 3 Japanese will be over 65 years old by 2050. Which means, the country has more old people than young ones who can reasonably support the country in the future.
And the government is worried.
This means healthcare costs are going up and it’s critical to provide a good place to take care of the elderly.
And that’s why Parkway Life REIT or PLife is the REIT to position itself in this market. You see, it’s very diversified portfolio of 53 properties owns some of the best nursing homes in Japan.
Though it’s a much smaller REIT than the other Singapore REITs, it is, in my opinion, the best of the best healthcare REIT.
Healthcare Investing is a Solid Wealth Defense
PLife owns 49 properties across Japan, which are well-located in the dense, residential districts of big cities. All of its properties are fully leased to various nursing home operators, with the big operators contributing more than 50% of its Japan nursing home rental income.
These are long term leases expiring in 11 years. And most of its properties have a yearly rent review.
In Singapore, PLife also owns some world-class local private hospitals — Mount Elizabeth Hospital, Gleneagles Hospital and Parkway East Hospital.
Pandemic or not, even in Singapore, the demand for healthcare is getting important. Very rich people would pay to fly here to Singapore to have their health treated in one of these hospitals.
Now, these hospitals are master leased to IHH Group, Asia’s largest private healthcare group listed in both Malaysia and Singapore.
And they’re very profitable in South East Asia, having been owned by Japan’s 2nd largest trading company, Mitsui & Co, and the Government of Malaysia.
Gross rental income is split equally between its Singapore and Japan assets.
You’d say both Singapore and Japan are the twin income engines for the REIT. Its latest 3Q2020 results have been resilient, growing its year-to-date gross rental income to SGD90 million.
While it’s distributable income to unitholders grew 3.8% to SGD61 million and 7.4% to SGD21 million.
PLife’s properties provide a very predictable form of cash flow. Free cash flow has been stable, growing from SGD65 million in 2010 to SGD80 million in 2019.
Since its IPO in FY2007, it grew its distribution per unit (DPU) from 6.32 cents to 13.19 cents in FY2019.
This gives income investors a very stable form of dividend income.
And if you’d held PLife since its IPO, you’d made an annual total return of close to 11%, including dividends. Making it one of the best performing Singapore REITs (as at Dec 2020).
Balance sheet is strong. Its gearing is at a healthy 38.6%, while its interest coverage ratio is 17x. This is because its Japanese properties can borrow at very cheap cost, in Japanese Yen.
While its key growth markets are in Singapore and Japan, PLife is also looking beyond other developed markets including Australia, Europe and the United Kingdom.
Sometimes, investing can be simple.
Conclusion — Your 8 Best Singapore REITs
You know, this list was originally a “10 Best Singapore REITs” list. But researching on 8 REIT alone can be darn tiring.
Anyway, I still have two more REITs I like to talk about. But, I’ll keep it for later next time. Need a break.
All these 8 Singapore REITs are a great way for you to get started, especially if you’re a dividend investor looking to grow your wealth in retirement safely.
That’s it for now,
Always here for you,
Willie Keng, CFA
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