The Motley Fool

Ask the Fools: Favourite Singapore REITs

We asked the Fools for their favourite real estate investment trusts (REITs) in Singapore. Here’s what they picked.

Chin Hui Leong: Parkway Life REIT

I bought Parkway Life REIT (SGX: C2PU) in April 2009, over 10 years ago.

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Today, I continue to hold units of the REIT (it’s in my better half’s account). Let me tell you why.

By 2030, elderly folks in Singapore over 65 years old are expected to make up a quarter of the country’s population. A similar trend is taking place in Japan, where estimates put a third of its citizens in the same silver age group by 2050.

Parkway Life REIT is poised to benefit, with its portfolio of three hospitals in Singapore, and 45 nursing homes and a pharmaceutical facility in Japan.

Tenant rentals are the lifeblood of REITs. If tenants are doing well, REITs can stand to benefit from higher rentals. Parkway Life REIT is well-positioned with favourable contract structures that provide downside protection to virtually its entire property portfolio.

Indeed, the REIT’s distribution per unit has more than doubled since 2007.

The distributions I have received over the past decade has exceeded the original cost of what I paid, a telling demonstration of the power of long-term investing.

To be sure, units are priced at the higher end of valuation today. But if you’re looking for income, like I am, we should be comfortable holding on.

Chin Hui Leong owns shares in Parkway Life REIT.

Chong Ser Jing: Mapletree Logistics Trust

Mapletree Logistics Trust (SGX: M44U), or MLT, has one of the best five-year returns amongst Singapore’s REITs, but I don’t think it’s done winning. The REIT – as its name suggests – owns logistics properties in the Asia Pacific region, and these properties are typically located in established logistics clusters within their respective geographies, easily accessible by land, and close to seaports and/or airports.

The REIT has a strong long-term track record of growth in gross revenue, net property income, and distribution per unit (DPU) stretching back a decade, but there’s more to come. MLT had made a series of acquisitions in recent times, which could lead to near-term growth. The acquisitions include a 50% interest in 11 Grade-A properties in China in June 2018 and five logistics properties in Singapore in September 2018.

MLT’s portfolio could also benefit from long-term growth trends, such as Asia’s rising middle class population (Asia is forecasted to house over two-thirds of the world’s middle-class population by 2030, up from 46% in 2015) and growing appetite for e-commerce (the Asia-Pacific region’s e-commerce market is expected to triple to US$3.0 trillion by 2021). Moreover, serving as the foundation for growth is the REIT’s strong balance sheet. MLT ended 31 March 2019 with an aggregate leverage ratio of just 37.7% (below the regulatory limit of 45%), an interest coverage ratio of 4.9, and well-staggered debt maturities.

MLT’s trailing distribution yield of 5.2% at a unit price of S$1.52 is not particularly high, but it could be worth paying up for the REIT’s growth.

Chong Ser Jing owns shares in Mapletree Logistics Trust.

David Kuo: CapitaLand Retail China Trust

There are a billion reasons to be interested in CapitaLand Retail China Trust (SGX: AU8U). The operator of 11 shopping malls in China, which could grow to 14 following its proposed acquisition of three new properties, is well placed to tap into the growing wealth of Chinese residents.

That growth has seen the disposable income of Chinese residents rise from RMB17,174 in 2009 to RMB36,396 in 2018. Retail sales growth has risen 7.2% year on year in April.

Meanwhile, CRCT has grown rental revenue from S$111 million to S$206 million, as it expands in China. Operating income has almost doubled from S$69 million to S$131 million, while net income has trebled from S$42.7 million to S$128 million.

The distribution per unit has lagged, though. It has only grown from S$0.08 to S$0.10 as outstanding shares rose from 604 million to 972 million. But distribution growth of 2.5%, coupled with a prospective dividend yield of 6.8%, still makes CRCT a compelling investment for income investors.

David Kuo owns shares in CapitaLand Retail China Trust

Tim Phillips: Mapletree Industrial Trust

There’s no arguing with the distribution payout record of Mapletree Industrial Trust (SGX: ME8U), or MIT. Since listing in 2010, it has grown its distribution per unit (DPU) every year – from 8.12 Singapore cents in FY 2011/12 to 12.16 Singapore cents in FY 2018/19. And the signs are that it won’t stop growing this number anytime soon either. Meanwhile, management’s solid track record on acquisitions and asset enhancement initiatives (AEIs) – along with solid control over its debt, risk and capital – are rather unsexy attributes that can be overlooked by investors.

It owns a total of 101 properties across five segments; flatted factories, stack-up/ramp-up buildings, hi-tech buildings, light industrial buildings and business park buildings. MIT used to be a pure-Singapore industrial play but what has really excited me about its future growth was the 2017 purchase of a 40% interest in 14 data centres across the US (with right-of-first-refusal on the other 60% owned by parent and sponsor Mapletree Investments Pte Ltd). The incredible growth in adoption of cloud computing and the data storage requirements that go with it is a wave that MIT will keep on riding.

I feel that MIT’s trailing distribution yield of 5.7% at a unit price of S$2.14 is fair given the growth potential and consistent track record that it has displayed since listing.

Tim Phillips owns shares in Mapletree Industrial Trust.

Sudhan P: CapitaLand Mall Trust

My favourite REIT is CapitaLand Mall Trust (SGX: C38U), which owns 15 shopping centres in Singapore. CapitaLand Mall Trust also holds a significant stake in CapitaLand Retail China Trust.

I like that CapitaLand Mall Trust’s malls are located in close proximity to MRT stations, and some of them are also near bus interchanges. The strategically located portfolio allows a sustained flow of traffic to the malls and gives shoppers the convenience of “picking-and-going”, amid the e-commerce challenge. Source: CapitaLand Mall Trust investor presentation

I believe the key locations of the malls, along with their prudent management, has allowed CapitaLand Mall Trust to grow its distribution per unit (DPU) over the years. From 2013 to 2018, the REIT’s DPU climbed from 10.27 Singapore cents to 11.50 Singapore cents. The increase translates to an annualised distribution growth of 2.3%.

There is a possibility of the DPU rising further in the coming years with a full-year contribution from the acquisition of Westgate at the end of 2018 and the opening of Funan next week, on 28 June 2019.

At CapitaLand Mall Trust’s current unit price of S$2.58, it has a trailing distribution yield of 4.5% and a price-to-book ratio of 1.3. The market could be pricing in the growth in DPU from the Funan opening, and so, valuation looks to be on the higher side now. But if you are looking for a stable retail REIT with a large market share of the Singapore shopping mall market, CapitaLand Mall Trust would be a smart choice.

Sudhan P owns shares in CapitaLand Mall Trust.

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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 recommendations on Parkway Life REIT, Mapletree Logistics Trust, CapitaLand Retail China Trust, Mapletree Industrial Trust, and CapitaLand Mall Trust.