REITs remain a popular investment vehicle for their regular and consistent dividend payments.
However, not every REIT is worth investing in.
With the sharp increase in the number of listed REITs in Singapore over the last decade, investors naturally need to be more discerning.
Furthermore, the COVID-19 pandemic has indeed separated the wheat from the chaff.
Strong REITs may have to slash their distribution per unit (DPU) during this unprecedented crisis, but these REITs are more likely to recover as the situation improves.
In contrast, weaker REITs may struggle to recover and continue to languish.
Some may also face an uphill struggle in refinancing their debt or finding strong tenants.
Good qualities to look out for include a strong sponsor, well-located assets and a great track record of growing DPU (either organically or through acquisitions).
With that in mind, here are three REITs that you can consider adding to your watchlist.
CapitaLand Mall Trust (SGX: C38U)
CapitaLand Mall Trust, or CMT, is the largest retail REIT by market capitalisation in Singapore.
The REIT owns a portfolio of 15 quality shopping malls that are strategically located in suburban and downtown areas, such as Funan, Junction 8 and Plaza Singapura, to name a few.
Real estate giant CapitaLand Limited (SGX: C31) is the sponsor for the REIT, and owns a global portfolio consisting of commercial, retail, industrial and residential properties.
For the first quarter of 2020, CMT reported a 6% year on year increase in gross revenue, while net property income improved by 5.9% year on year.
DPU, however, fell sharply by 70.5% year on year to S$0.0085 as the REIT retained cash to fund tenant relief packages and weather the sharp downturn.
With well-located retail malls within its portfolio, the REIT should see a rebound in shopper traffic as Singapore enters Phase II of its post-circuit breaker measures.
Investors can also look forward to the upcoming merger with CapitaLand Commercial Trust (SGX: C61U), or CCT, to form the third-largest REIT in the Asia Pacific region.
This merger will not only increase future DPU but also create a new REIT called CapitaLand Integrated Commercial Trust that holds a broadly diversified portfolio of both commercial and retail assets.
Frasers Logistics and Commercial Trust (SGX: BUOU)
Frasers Logistics and Commercial Trust, or FLCT, is a REIT that is focused on logistics and commercial properties in five countries – the Netherlands, Singapore, UK, Germany and Australia.
FLCT was formerly known as Frasers Logistics and Industrial Trust, but had just concluded its merger with Frasers Commercial Trust to form FLCT.
The combined REIT is now much more resilient as it has expanded its geographic coverage to five countries (from three previously) and a portfolio of 99 properties worth S$5.7 billion as of 31 March 2020.
FLCT’s top 10 tenants for the industrial portfolio include reputable names such as BMW, Techtronic Industries and Bosch.
On the commercial side, tenants include Google Asia Pacific, Commonwealth Bank of Australia and Suntory Beverage and Food.
FLCT also has a strong sponsor in Frasers Property Limited (SGX: TQ5), a property conglomerate with a wide range of properties located in over 70 cities across Asia, Australia Europe, the Middle East and Africa.
The REIT’s prospects look bright with a greater than S$5 billion right-of-first-refusal pipeline of potential property acquisitions from its sponsor.
Mapletree Industrial Trust (SGX: ME8U)
Mapletree Industrial Trust, or MIT, is a REIT that invests in income-generating industrial property and data centres.
As of 31 March 2020, MIT’s portfolio consists of 87 industrial properties in Singapore and 27 data centres in North America, with assets under management worth S$5.9 billion.
The REIT has a strong sponsor in Mapletree Investments Pte Ltd, a leading real estate development and investment management company that counts Temasek Holdings as one of its shareholders.
MIT reported an admirable set of earnings for the fiscal year 2019/2020, with a 7.9% year on year increase in gross revenue and a slight 0.7% year on year increase in DPU to S$0.1224.
Rental arrears ratio has remained low at 0.2% of the previous 12 months’ gross revenue but may increase if more SME tenants seek temporary relief.
The REIT’s large and diversified tenant base should insulate it from the worst of the pandemic’s effects.
Early this week, the REIT also announced an acquisition of the remaining 60% interest in 14 data centre assets in the US.
The total acquisition outlay is around US$218 million and will be funded by a private placement to raise expected gross proceeds of no less than S$350 million (around US$246.5 million).
This acquisition is positive for the REIT as it increases its exposure to the resilient data centre segment to 39%, and will allow MIT to better weather the current crisis.
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Disclaimer: Royston Yang owns shares in Frasers Logistics and Commercial Trust.
