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The 3 Best Performing REITs In 2017

Lawrence Nga

The Straits Times Index (SGX: ^STI) started 2017 at 2,881 points and ended the year 18.1% higher at 3,403. Yet, this healthy return does not imply that all types of stocks in the local market did well.

Fortunately for investors who like real estate investment trusts, 2017 was a year in which REITs had a respectable performance; in the 12 months ended 8 January 2018, REITs in Singapore’s market had produced a return of around 18%. But this being said, not every REIT had generated double-digit returns in the past year.

This article is the first in a short series which will look at the best and worst performing REITs in 2017. It will focus on three REITs that produced a good return in the year.

The first one on the list is Mapletree Greater China Commercial Trust (SGX: RW0U), a REIT that focuses on commercial and retail real estate in China and Hong Kong. It currently has three properties in its portfolio, namely, the Festival Walk retail mall in Hong Kong, the office building Gateway Plaza in Beijing, and the business park Sandhill Plaza in Shanghai.

In the REIT’s first half of its fiscal year ending 31 March 2018 (the reporting period is from 1 April 2017 to 30 September 2017), it reported that its net property income was up 4.5% year-on-year to S$142.9 million. Its distribution per unit correspondingly grew 2.9% year-on-year to 3.714 cents.

Looking ahead, Mapletree Greater China Commercial Trust expects gross revenue at Festival Walk to remain stable. The mall’s average reversion rate for leases expiring in FY17/18 (fiscal year ending 31 March 2018) is also “expected to grow at a moderate pace.” As for Gateway Plaza, the REIT expects to see modest growth in rental reversion for leases expiring in FY17/18. Lastly, Sandhill Plaza is “expected to continue to benefit from a healthy rental reversion.”

In 2017, Mapletree Greater China Commercial Trust produced a total return (including distribution gains) of 38.3%. At today’s unit price of S$1.28, the REIT has a price-to-book ratio of 1.03.

Next up, we have Suntec Real Estate Investment Trust (SGX: T82U), one of the largest REITs in Singapore. It has interests in retail malls and offices in Singapore and Australia. Its portfolio includes Suntec City, a one-third interest in One Raffles Quay, a commercial building in Sydney, and a 25% stake in Southgate Complex in Melbourne, just to name a few.

2017 saw the REIT produce a total return (again including dividends) of 37.7%. Interestingly, Suntec REIT’s business performance in 2017 was mixed.  In the first nine months of the year, Suntec REIT brought in gross revenue of S$266.9 million, up 11.4% year-on-year. But, its DPU dipped by 0.1% to 7.401 cents.

In its earnings release, Suntec REIT gave commentary on its market environment. The REIT said that the “Singapore office market improved in the third quarter of 2017 on the back of stronger economic conditions and positive business sentiment.” On the retail scene in Singapore, Suntec REIT commented that “despite the improvement in retail sales which was driven by improving consumer sentiments and tourist arrivals, retailers in Singapore remain conservative in their demand for retail space.”

Coming to Australia, “occupancy and rents [in Sydney, North Shore, and Melbourne’s office markets] are expected to strengthen given the strong occupier demand coupled with limited new supply.”

Suntec REIT has a PB ratio of 1.04 at today’s unit price of S$2.20.

Lastly, we have CapitaLand Commercial Trust (SGX: C61U), which produced a distribution-adjusted gain of 42.2% in 2017.

The REIT, which is  one of the largest commercial REITs in the local market by market capitalization, has ownership stakes (either partial or full) in nine prime commercial properties in Singapore. Its properties include Capital Tower, Six Battery Road, and Raffles City.

The first nine months of 2017 saw CapitaLand Commercial Trust produce strong business growth. Net property income was up 23.1% to S$197.5 million, and DPU was up 3.4% to 6.92 cents.

But, the REIT’s outlook is not that bright. In the earnings release, CapitaLand Commercial Trust commented that “lower net property income is expected in FY2018 at select properties in [the REIT’s] current portfolio due to flow-through of negative rent reversions of leases committed in 2017 and potentially continued negative rent reversions in 2018.”

At the REIT’s current unit price of S$1.97, it has a PB ratio of 1.07.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn't own shares in any companies mentioned.