Managing a portfolio for your parents can be a tricky task. Lose money, and you will never hear the end of it. Just imagine the backlash and nagging you will get. Therefore, it is essential that you choose stocks that can achieve decent returns with very limited downside risk.
With that in mind, I have found two real estate investment trusts (REITs) that could be the perfect fit for parents. Not only do those REITs have impressive track records, the stable distributions and propensity for growth provide both stability and upside potential.
The first REIT is Parkway Life REIT (SGX:C2PU). It is perhaps the most stable and consistent REIT in the stock market. Its portfolio consists of 50 healthcare-related properties that includes three in Singapore (Mount Elizabeth, Gleneagles and Parkway East), 46 properties in Japan and Gleneagles Intan Medical Centre in Kuala Lumpur.
The REIT has a commendable record of growing its distribution per unit (DPU). In the last five years, it has grown its DPU at a compounded rate of 3% per annum.
It also has a very well managed debt profile, with a 38% gearing ratio (a measure of debt) and interest cover (how easily it can pay off its interest expense) of 13.2 times. The interest cover is one of the highest among REITs in Singapore. This provides the REIT with financial capacity for acquisition growth in the future.
Furthermore, the rental income from its properties is also very stable. Its properties in Japan have a weighted average lease expiry of 13 years, with built-in rental escalations tied to the consumer price index. This provides visible organic rental income growth.
Its tenant in the Singapore hospitals is IHH Healthcare Bhd (SGX:Q0F), the largest listed healthcare operator in Singapore. IHH has a stable income and strong financials, which means that the company can most likely pay its rent and renew its contract when the lease expires.
Although units of Parkway Life REIT do not come cheap and have a distribution yield of just 5%, investors can be pretty sure that distributions are most likely going to grow over time.
CapitaLand Retail China Trust (SGX:AU8U), as its name suggests, invests primarily in shopping malls in China. It currently has a portfolio of 11 shopping malls located in major cities in China. The trust also has an outstanding track record of maintaining and growing its distributions even in harsh economic conditions.
In the most recent quarter, the REIT managed to increase its distribution per unit by 0.4% and reported strong positive rental reversions of 12.8%. With another 28.1% of leases due for expiry this year, the REIT can capitalise on the strong uptick in demand to grow its rental income in its existing portfolio.
On top of that, the REIT has a gearing ratio of just 32.5%, much lower than Parkway Life REIT even. This gives CapitaLand Retail China Trust the financial muscle to make yield-accretive acquisitions to grow its portfolio in the future.
At the time of writing, units of CapitaRetail China Trust exchanged hands at S$1.49 per piece. That translates to an 8% discount to its book value and a handsome distribution yield of 6.56%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on Parkway Life REIT and CapitaLand Retail China Trust. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.