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

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.

And here's the final piece to the entire series. Enjoy!

Financial data are sourced from Yahoo Finance or Morningstar.com.

You can find Part I on Seedly Opinions here.

You can find Part II on Seedly Opinions here.

Best Singapore REIT No. 7 — Keppel DC REIT

Ticker: AJBU.SI

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

Ticker: C2PU.SI

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 just 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.

PLife's 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

There you have it, all the 8 best Singapore REITs at your fingertips.

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.

Your Desk Analyst

Willie Keng, CFA

DividendTitan