If you are a retiree wanting regular payouts, or a dividend investor looking for high dividend yields, you would most likely have heard of Singapore REITs. Before Covid-19, REITs were well known for paying out regular dividends due to tax transparency rules, as well as having stable share prices, due to the demand for space of the properties which they are based on.
Covid-19 however, was a game changer. Many Singapore REITs took a beating due to the sudden drop in demand for their properties as work-from-home arrangements took precedence and dining-in was restricted. Most industrial REITs performed better, particularly those with data centre, logistics and business park assets due to the expected demand for such properties to increase.
Despite macro and structural changes, there are still REITs which are performing well or have great prospects going forward. We’ll look at 3 REITs which are primed to continue their growth, and provide investors with growing dividends as well.
Frasers Centrepoint Trust (SGX:J69U)
An extremely popular REIT among Singapore investors, Frasers Centrepoint Trust is a well-known retail REIT which owns 9 dominant suburban malls located in dense residential catchment areas, near transportation nodes and focused on essential goods and services. The REIT has executed an acquisition of 6 more properties from it’s sponsor and has also divested 3 smaller malls in order to optimise it’s portfolio.
The REIT’s properties enjoy high footfall and recurring traffic due to their proximity to MRT stations and position near to large population areas. Having 45% of their net lettable area allocated to essential services such as F&B and supermarkets also helps as demand for these services are relatively inflexible even during the pandemic.
Frasers Centrepoint Trust’s portfolio occupancy has remained stable at 96.4%, while prime suburban retail rents have also performed well, holding steady even during the pandemic. This can be attributed to the incessant demand for prime suburban retail space in Singapore. The REIT has also been managing it’s leverage well, keeping it’s gearing ratio low at 33.9% and giving it ample headroom to execute asset enhancements and acquisitions.
Some possible catalysts for it’s share price could be due to great demand in the years to come, as the already low supply of retail space is affected by construction delays and might be forced to play catch-up with the surge in demand for retail once the pandemic is under control. The acquisition of the remaining stakes in Northpoint City and Waterway Point, both high quality assets, might also re-rate the counter.
Keppel DC REIT (SGX:AJBU)
A Singapore REIT which focuses on data centers as their main form of real estate asset, Keppel DC REIT owns and manages a total of 19 data centers located in the Asia pacific region and Europe. Data centers are an essential element of the future economy as they they store, process and communicate data produced every single day, forming the backbone of a booming digital economy around the world. A well-managed data center would also include features such as data back-up and recovery, energy efficiency, and data security elements.
With the digital economy requiring greater data and computing capacity due to increased activity, as well as the global internet traffic surge and upcoming 5G networks, the REIT looks set to enjoy even more demand for it’s expertise and assets. As most of it’s tenants operate in high-growth industries such as Internet services, IT, and Telecommunications, the REIT has been able to achieve a healthy occupancy rate of 97.8% for it’s assets.
The REIT also has a long WALE of 6.6 years, with 1.5 to 4.5 years being the norm for other REITs. This aspect gives investors greater income visibility and peace-of-mind when investing in the REIT. The managers have also handled the leverage of the REIT well, attaining a low average cost of debt at 1.5% annually, and a leverage ratio of 37.2%, giving it headroom to conduct more acquisitions if needed.
Keppel DC REIT has performed very well over the last few years, with gross revenue increasing from S$107m in 2015, to S$265m in 2020. Distribution per unit has also increased from 6.84 cents in 2015, to 9.17 cents in 2020. Of note was a surge in gross revenue and DPU in 2020, increasing more than 35% YOY. If the above mentioned macro trends continue, 2020 might be the start of a new phrase of growth for the REIT.
ESR REIT (SGX:J91U)
ESR REIT is a mid-sized industrial REIT which owns 58 properties in Singapore, as well as 10% of the total issued units in ESR Australia Logistics Partnership, which is a private fund managed by ESR Asset Management (Australia) Pty Ltd, an indirect subsidiary of the sponsor. Through the fund, the REIT also has partial ownership in 37 logistic assets in Australia.
The sponsor of the REIT is ESR, a Hong Kong based logistics real estate platform with a network spanning major economies across the APAC region, and a total of US$27b in AUM which ESR REIT has first look priority. The sponsor has assisted ESR REIT to double it’s portfolio gross floor area since it’s inception, access the sponsor’s foreign assets, and also provided strong capital support and financial commitments to ESR REIT through backstops in preferential offerings.
The REIT is well positioned to benefit from the uptrend in manufacturing output, with industrial rents across Singapore holding steady and even increasing during the pandemic. With sectors such as electronics, precision engineering, and biomedical manufacturing flourishing despite the pandemic, demand for business parks, high-specs industrial, and logistics spaces should continue to grow.
ESR REIT has a relatively high average cost of debt at 3.52% per annum and a leverage ratio of 42%, but this leverage should decrease over time as management pays down or refinances loans. In the meantime, the REIT has been able to improve it’s core DPU from the 1Q 2020 lows, and currently generates a annual dividend yield of 6.4% while investors wait for demand to return.