Recession or not, this is the ultimate guide on what you need to know about the 4 best Singapore REITs to buy in 2022
The selection is based on two big criteria:
- The underlying potential of a Singapore REIT
- The REIT’s potential future dividend yield
So if you’re looking to see what my favourite Singapore REITs to buy for 2022, you’ll love this updated guide. Let’s get started.
Singapore REIT #1: Ascendas REIT
Market cap: S$11.5 billion
Dividend yield: 5.5%
If CICT is the grand daddy of Singapore REITs, Ascendas REIT is the mother of all Singapore industrial properties.
Ascendas REIT is one of Singapore’s top 30 companies. And part of the Straits Times Index (STI).
This is traditionally Singapore’s biggest industrial REIT that owns logistics, warehouse facilities and light-industrial buildings — leasing out to electronics, food, machinery tenants.
Ascendas REIT has beenshedding its old skinfast to turn itself into a global business park and data center powerhouse.
And it knows these are the big trends today.
More companies are moving into cloud computing.
More people use smartphone devices.
Even homes are shifting into the concept of the “Internet of Things”.
The 5G revolution, and all of that above requires a place for data.
When you stream a video, post pictures online, or even upload office documents, you need a physical space to store these virtual data. There’s a strong demand for virtual data to be stored physically.
By moving into business parks and data centres, Ascendas REIT captures the high-quality tenants that deal with these data today — DSO National Laboratories, the big Singapore banks, telecommunication companies, fast-growing technology companies that are producing massive cash flow.
In other words, Ascendas REIT wants companies — at the forefront of technology, biomedical science, banking and telecommunications – as their paying tenants.
Ascendas REIT is pretty smart about it.
It’s moving into more freehold leases, such as business park and data centers. This is something different from CICT, where most of the properties are in Singapore. Ascendas REIT is well-diversified across different countries. And its gearing is lower. Which means it still has plenty of room to grow its portfolio.
Source: Ascendas REIT 1Q2022 Presentation Slides
As it grows its portfolio, Ascendas REIT has been growing its DPU steadily over the past years.
In fact, over the last 10 years, it steadily grew its DPU.
Not too bad.
Source: Ascendas REIT’s website
Ascendas REIT’s wide diversification across different industrial properties make it safe.
And what’s even better, is it makes sure not one of its tenants take up more than 5% of Ascendas REIT’s gross rental income.
No matter how big these tenants are in their fields, Ascendas REIT does not need to rely on any of them to grow the business.
You see, if anyone decides to leave the properties, Ascendas can easily find another tenant without worrying about a drop in rental income.
Ascendas REIT is in my best 10 Singapore REITs for 2022 Singapore REIT.
#2: CapitaLand Integrated Commercial Trust (CICT)
Market cap: S$14.3 billion
Dividend yield: 4.8%
CICT has been in my number one spot in my top 10 last year. In fact, it’s also one of mytop positionsin mypersonal portfolio. But I cannot get away from the fact that this is the biggest Singapore REIT.
And also one of the better run REITs.
After the CMT and CCT merged last year, this beast is even bigger than before, giving it more firepower to fight against some of the overseas properties. And that’s what I like when it comes to big REITs.
I feel safer this way.
Actually, just by owning CICT, you get a good exposure to Singapore’s office and retail assets. CICT gets almost the best of it after its merger. While it tries to go global, most of its assets are still in Singapore.
At S$14 billion market cap, CICT owns 25 properties today — all retail malls, offices and mixed developments.
Source: CICT’s 1Q2022 Presentation Slides
What I like about them is more than just size.
Actually, CICT is an active “asset recycler”.
They know how to actively recycle their assets. This means selling away expensive assets, buying cheaper, higher-quality assets.
Say for example, last year CICT took profits off their 50%-stake in One George Street office asset for S$640 million, at a 3.17% property yield. Then they redeployed these proceeds to buy cheaper assets in Australia with a combined yield of 5.1%:
- 100 Arthur Street
- 66 Goulburn Street
- 101 Miller Street and Greenwood Plaza
These are premium grade offices within Sydney’s CBD regions.
Source: CICT’s 1Q2022 Presentation Slides
I’d say it’s pretty good.
Instantly, it’s yield jumped from 3.17% to 5.1% and they expect DPU to grow by 2.8%. Not too bad.
The problem that I’m seeing for CICT is it’s sort of reached its growth cap to expand its proeprty portfolio. Its leverage is already at 40%. And there’s really not much growth for this Singapore REIT.
While I don’t expect a huge spike in their DPU growth. What I really like about CICT is the stability of its assets.
Where it’s growth potential is not from huge acquisitions. But trying to grow organically. People are returning to offices. Retail is recovering. So there’s a lot of recovery potential for CICT.
First, tenant sales and shopper traffic have yet to hit full capacity like in 2019 — pre-COVID levels.
Last year, tenants sales only recovered to 87.8% of pre-COVID levels. And shopper traffic has recovered only to 61.2% of pre-COVID levels in 2019.
Retail revenues are tied closely to how much tenants make money. If tenants can sell more stuff in their shops, CICT also gets a cut.
Right now, its rent adjustments have came down by about 7.3% compared to 2019.
What this means, is CICT’s retail malls have yet to go back to pre-COVID levels. But it’s important to know it’s recovering well since the height of the pandemic.
It’s crucial to have patience to ride through this period.
What’s more, companies are getting staffs back to their physical workspace. Unlike megacities in the world, In Singapore, it’s impossible to have a pure “work from home” model because of the limited home space in each household.
Even at paying such dividends, CICT’s office occupancy is at 91.5%, and only 37% of people are back in office. It’s still not showing CICT’s true income potential.
In its latest 1Q2022 result,
- Overall occupancy rate — 94%
- 1Q2022 tenant psft sales has gone up 0.6%
- Average Singapore office portfolio rent was stable at S$10.49 psf (up 1.5% q/q)
It’s not fantastic results. But I’m comforted hearing these numbers.
CICT is an asset where you can’t bet on big growth in the its properties. But what comes with is the defensiveness of the asset.
Over the last 10 years, it’s DPU has grown.
Source: CICT’s annual filings
I expect CICT to continue to growing.
REIT #3: Frasers Centrepoint Trust (FCT)
Market cap: S$3.8 billion
Dividend yield: 5.4%
This Singapore REIT is as steady as a rock.
- First, its 1H2022 performance still doing well
- Occupancy rate improved 0.6% to 97.8% (first chart below)
- Positive rent adjustments of 1.74%
- Net property income (NPI) margins improved 1.2% to 75% (second chart below)
- DPU grew 2.3% to 6.136 cents per unit compared to last year.
Not too bad.
Source: FCT’s 1HFY2022 presentation slides
COVID wrecked retail malls. Yet, FCT shares are still resilient.
And the reason is simple. All of FCT’s 11 retail malls are located deep in Singapore’s heartland area. In fact, FCT is the heartland dominator of Singapore REITs.
I like heartland malls because these malls foot traffic tend to be stable, driven by local residences. Not tourists.
And half of FCT’s tenants are in essential services — mainly F&B and groceries.
These are daily essentials people need.
Think about it: these malls serve as a last mile delivery centers young families — you get off from work, drop by to pick up groceries and dinner.
In fact, 37.5% of FCT’s total income comes from F&B, which makes this Singapore REIT’s tenants even more sticky.
And impervious to e-commerce disruption.
As more people start to go back office, heartland malls become more crucial to serve local residences.
That’s why FCT’s revenues and NPI continued to grow 1.5% and 3.8% respectively in 1H2022.
Last year, FCT completed buying the remaining 63.1% stake of AsiaRetail Fund, which owns five Singapore heartland malls — Tiong Bahru Plaza, White Sands, Hougang Mall, Century Square and Tampines 1.
These malls are all located strategically near the MRT station. And command high foot traffic.
What’s more, these malls are located in places where there are limited or no big competing shopping malls around.
This means, in the long run, Frasers Centrepoint gets to enjoy heartland dominance.
But what I don’t like about FCT is this: you can’t exactly grow beyond the existing heartland malls it owns — there’s only so many heartland malls and limited land space in Singapore.
And most heartland malls are already held by other landlords and REITs. No one is simply going to sell their high quality malls.
This is not going to be a high growth Singapore REIT.
Besides, at 33% gearing ratio, I don’t think FCT will put on more leverage. Since they aren’t going to expand that much. Which makes this Singapore REIT pretty safe.
Source: FCT’s annual filings
So far, FCT’s DPU has been consistently growing. And this is one retail REIT that needs to be in everyone’s portfolio.
I expect with Singapore recovering from COVID + vaccination + people returning to offices, heartland malls are going to be bustling again.
#4: Parkway Life REIT
Market cap: S$2.9 billion
Dividend yield: 2.9%
I know, shares are already close to its all-time high. It’s silly to be buying Parkway Life REIT today.
Hear me out first.
I like Parkway Life REIT because of this: it has rent agreement that goes up with inflation!
Source: Parkway Life REIT FY2021 Presentation Slides
Its contract allows rent to grow along side inflation or profits.
If there’s inflation, this Singapore REIT collects more rent.
If its tenants make more money, rent also increases.
It’s a win-win for Parkway Life REIT. Crisis or not. No matter what’s going on in the world.
What I’m excited about is — half of its income comes from its Singapore hospitals, which is Gleneagles Hospital, Parkway East Hospital and Mount Elizabeth. These are high-quality, highly profitable private hospitals in Singapore.
Source: Parkway Life REIT FY2021 Presentation Slides
And all three hospitals are fully leased out to the hospital operators owned by IHH Group. IHH Group is one of Malaysia’s biggest health care companies. And a sponsor to Parkway Life REIT. IHH Group is 32.9%-owned by Mitsui and 26% owned by Khazanah, the investment holding arm of the Malaysia government.
Singapore is known for its “first class” healthcare services.
According to International Trade Administration, Singapore’s healthcare market is expected to grow to US$50 billion by 2029. And the government is going to spend US$36 billion by 2029.
Singapore is the future medical hub of the region.
And Singapore offers Asia’s best healthcare system. This is reflected by the country’s high life expectancies and lowest infant mortality in the world.
Yet, what’s crucial to know is Singapore faces a lack of medical expertise (personnel’s and facilities) and a greater demand for specialized elderly care amidst rising costs. In fact, it’s also known many affluent patients would fly in from neighbouring countries just to seek medical and aesthetic treatments.
That’s one half of Parkway Life REIT.
More importantly, the other half of its income comes from Japan nursing homes.
These are properties that sit on freehold and they also have agreements that are able to grow alongside high inflation.
In Japan — 1 in 3 Japanese will be over 65 years old by 2050. It’s a pretty tricky problem for Japan.
And Parkway Life REIT solves Japan’s aging problem by renting out space to nursing home operators — big players including K.K. Sawayaka Club, part of the listed company Uchiyama Holdings and also the biggest private nursing home operator in Kyushu.
Source: Parkway Life REIT FY2021 Presentation Slides
What I like best about buying Japan assets is you can borrow debt at a cheap cost. Parkway Life REIT only pays a total 0.56% borrowing cost.
Yet, it produces growing yield year after year. And that’s why its interest coverage is more than 20x. This is pretty unusual for most REITs when you have a higher borrowing costs of around 2.6% and a low yield of 4%.
This is also why Parkway Life REIT is able to produce uninterruptible dividends over the past years. So far, its DPU have more than doubled since 2007. What’s more shares have also grown about 411% since listing. It’s pretty impressive.
In its latest 1Q2022 results, its revenues grew 2.3% higher to S$30.7 million, as a result from higher rent from its Singapore hospitals and the newly acquired Japan assets. Net property income also grew 1.9% to S$29.5 million. It doesn’t have a huge gearing, which means it has more room to grow. Because more of its rent is on a triple net lease, it collects more profits from its. Tenants pay for utilities, operating costs, maintenance and property and insurance costs.
Parkway Life REIT is a defensive REIT. It has a long lease structure that’s supported by a stable stream of positive rental adjustments.
Parkway Life REIT is in my best 10 Singapore REITs for 2022
Source: Dividend Titan
$ASCENDAS REAL ESTATE INV TRUST(A17U.SI)$ $PARKWAYLIFE REIT(C2PU.SI)$ $FRASERS CENTREPOINT TRUST(J69U.SI)$ $CapitaLandInves(9CI.SI)$
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