Your Retirement Guide: 8 Best Singapore REITs to Buy Now [Part II]

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.

You can find Part I on Seedly Opinions here.

Best Singapore REIT No. 4 — Mapletree Logistics Trust

Ticker: M44U.SI

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

Ticker: HMN.SI

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

Ticker: J69U.SI

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.

I’ll explain.

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.

Stay Tunes for the Final Part...

I'm going to post Part III soon, so stay tuned.

That's it for now.

Your Desk Analyst,

Willie Keng,CFA

Dividend Titan