This article was originally posted from here.
Okay, I've been doing some heavy research on this, hence the darn long post. So I've decided to split this into three parts. You'll get every single one of them in Seedly Opinion.
Financial data are sourced from Yahoo Finance or Morningstar.com.
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.
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.
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 thebest Singapore REITs out there.
Actually I used to be a bonds analyst checking out which companies would 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.
Market Cap: SGD13 billion
Forward Dividend Yield: 6.20%
CapitaLand Integrated Commercial Trust, or CICT, 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.
A lot of retail malls are still very much in huge demand in the suburban area.
With Phase 2 out, CICT’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, CICT 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, CICT’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.
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’ 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.
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 wel
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.
I'm going to post Part II soon, so stay tuned.
That's it for now.
Your Desk Analyst,