REITS are a solid asset class with has the potential to provide attractive dividend returns backed by prime real estate. With a huge diversity of REITS (38 in total) listed in SGX, we delve into the top 8 REITS that stand out among the pack, coupled with the strong reasoning behind the picks based on sector focus where REITs under these outperforming sectors will thrive.
Singapore has been a top destination for business among large multinational firms. Office rental has remained on a growth trend due to supply moderation and existing Grade A office owners such as the various commercial REITs in Singapore would see healthy rental growth.
Capitaland Commercial Trust is one of the top commercial REIT performers in Singapore with total returns in excess of 20%. Its properties are mainly concentrated around Singapore’s Central Business District, around Raffles Place and Marina Bay area, and has an 18% stake in Malaysia listed commercial REIT MRCB-Quill REIT. Asia Square Tower 2, CapitaGreen and HSBC Buildings are some Grade A office buildings under its wings and occupied by high profile global Multinational Companies. Its tenant mix is top notch paymasters and has served its unitholders well via regular dividend distributions. Capitaland is also Singapore’s top property developer with strong property development expertise. Its Q3 2017 results were fairly positive with a 2.6% increase in DPU due to contribution from CapitaGreen.
Suntec REIT has a similar property profile geographical-wise compared to Keppel REIT where its properties are located both in Singapore and Australia. Suntec REIT does not only own Suntec Singapore, a well-known convention district among locals, but has stake in One Raffles Quay, Marina Bay Financial Tower and 9 Penang Road. Q3 2017 financial performance remained fairly stable with slight dip of 2.1% in DPU on the back of improving performance by Suntec Singapore. Recovery of Grade A office rates will be a boon to Suntec Singapore as well.
OUE Commercial REIT did not register double digit % price gains as well but nevertheless ended the year 2017 YTD with a 3% gain. Its DPU suffered a huge drop at 12.9% compared to prior year’s distribution as a result of private placement dilution. Total distribution income was a tad higher with 3.8% growth supported well over 95% occupancy rate in its key buildings namely One Raffles Place, OUE Bayfront and Lippo Plaza. Its current yield of 6.6% makes it an attractive REIT that may be under-appreciated by investors.
Consumer sector is making a comeback with 2017 charting higher household income, delay of GST hike from 7% to 9% as per the recent Budget 2018 announcement and a recovering labour market. The special cash bonus announcement which will be distributed will be a boon to consumer sector as well. Tourist arrivals were strong in 2017, charting 2 consecutive years of growth for Singapore. This makes hospitality sector a choice sector for investment in 2018.
Frasers Hospitality Trust is one of the hospitality REITs contributing to the overall vibrancy of Singapore REIT market. It is a pure play hospitality REIT with some service residences portfolio, and is globally diversified with 15 properties in 9 cities. Intercontinental Singapore is one of its local holdings, with Sofitel Sidney Wentworth and Park International London as part of its overseas hospitality assets. Its Q1 2017 DPS came 4.2% in lower as compared to previous corresponding quarter due to a rights issue which increased the number of units outstanding. Its growth engine is in full force from the recent acquisition of Novotel Melbourne and Maritim Hotel Dresden and investors can look to stronger performance recovery from its Singapore and Japan assets. It is currently offering the highest yield among all hospitality REITs at 6.77% per annum.
For investors looking to be exposed to the global tourism sector, CDL Hospitality Trust is the REIT that should fall under the investors’ radar. Its property portfolios are scattered all over the world in major cities from Tokyo to Perth with huge tourist arrivals business travellers every single year. CDL HTrust provides excellent geographical diversification, backed by world class hotels run by solid management team. Its Singapore portfolio makes up 58% of total property portfolio, with the remaining 42% strategically located in other major cities. It is always on the hunt for quality hospitality assets with the latest being the acquisition of Manchester hotel. Its track record is backed by an attractive dividend yield of 5.49% per annum, making it one of the best REIT in Singapore. Past performance over the past year had been amazing as well, delivering near 20% gains in unit price alone.
OUE Hospitality Trust would also make an excellent REIT investment should investors want a Singapore pure play hospitality REIT, similar to Far East Hospitality Trust. Its property portfolio comprises solid 5 star hotels namely Crowne Plaza and Mandarin Orchard. Its dividend yield is one of the highest offered at 6.08%. Singapore tourist arrivals had been on a steady uptrend over the many years up till 2016 with the Singapore government constantly seeking new inputs to attract tourist dollars. The hotels are upscale hotels catering to well-heeled tourist whom are less price sensitive and values great top notch hospitality hotel service. OUE Hospitality is well positioned to reap solid occupancy from these tourist segments.
Globally and locally, healthcare sector is another growth frontier that would do well in the long run as ageing population has been increasing in large proportions in the US and Asia as well. Greater medical attention is needed due to rising standard of living and this will be a boon for all healthcare service providers.
First REIT would be a great investment asset for serious REIT investors. Its property comprises hospitals and nursing homes and is considered a REIT operating in a niche sector. It has hospitals located in Indonesia, Singapore and South Korea and remain heavily concentrated in Indonesia. Healthcare spending in Indonesia as well as Singapore will see rapid increase in the future and demand for quality healthcare services would set to increase. This bodes well for the REIT where its property supports the provision of healthcare services and various rooms tailored for medical examinations and surgical procedures. First REIT’s dividends are absolutely recession proof where during the global financial crisis in 2008, its distribution per unit per quarter stood stable at about SGD1.92 cents per unit.
ParkwayLife REIT is another pure play healthcare REIT which would make a good proxy for healthcare exposure for investors. Latest 4Q 2017 results were strong, with DPU coming in at 10% higher compared to prior quarter. It has a strong sponsor Parkway and portfolio comprises of hospitals and nursing homes in Singapore, Japan and Malaysia. Its occupancy rate is close to full at 99.97%. Management has plans to venture into Europe and Australia but is cautious on any acquisitions. With the REIT operating in mature Singapore and Japan healthcare markets, the REIT is poised to deliver steady returns to unitholders.
REIT investors should not expect massive capital gains overnight, but to hold a long term view of the property’s prospects in retaining tenant over the long run and reaping the investment returns via regular and recurring distributions. Investing is REIT has many similarities compared to direct real estate investment, but without much of the tenant management technicalities. REITS is still a growing sector in Singapore and would remain one vital asset class for income seeking investors.
(By Chee Hoong Chan)