Real estate investment trusts (REITs) have skyrocketed in popularity in Singapore. Besides providing investors with exposure to a range of real estate, REITs also provide consistent and relatively high yields compared to the broader market.
But, with more than 40 REITs and stapled trusts in the market, which should investors buy?
Below, I rank my top three REIT picks to buy now.
No. 3: Riding on the e-commerce boom in China
EC World Real Estate Investment Trust (SGX: BWCU) takes its place at the third spot on this list. One of the main reasons for this is the REIT’s comparatively high, yet sustainable yield. Based on current share prices, the pure-play China logistics REIT sports an attractive yield of 8.4%.
To put that into perspective, its current yield is the second highest in the market. But more importantly, EC World REIT looks like it can sustain its distribution per unit (DPU).
For one, the REIT has long average lease expiries and built-in rental escalations with most of its key tenants.
Its port logistics assets are also inland ports catering to tenants that handle domestic businesses with limited exposure to international trade. As such, the ongoing trade conflict will have minimal impact on its tenants’ business and their ability to pay rent.
EC World REIT also recently announced an acquisition that is expected to be yield-accretive.
Yes, EC World’s distribution per unit will be affected by China’s devaluation of the currency. However, its portfolio’s solid long-term fundamentals and high yield make its risk-reward profile extremely favourable for long-term investors.
No. 2: A steady ship
Healthcare REIT First Real Estate Investment Trust (SGX: AW9U) saw its share price plunge last year. Shares suffered as its main tenant and sponsor, Lippo Karawaci, endured a credit downgrade, leading to fears that the property giant may not renew its rental leases with First REIT.
However, there was some positive news in March this year as Lippo Karawaci secured US$1.01 billion (S$1.37 billion) in funding through a rights issue and by divesting some of its assets. The injection of cash for the property giant should be great news for First REIT shareholders, who can now sleep easy with the knowledge that its key tenant will likely have more than enough funds to pay its rental obligations.
Despite a run-up in the REIT’s stock price recently, First REIT still sports a fat yield of 8.0%. On top of that, the healthcare REIT has favourable lease terms with its tenants. In Indonesia, its properties have annual base rental escalation at two times the consumer price index of Singapore and are pegged to Singapore dollars, shielding the company from foreign exchange fluctuations.
Its Singapore and South Korean properties also have annual increments of 2%. Furthermore, its weighted average lease expiry as of 30 June stood at a relatively long eight years. All of this provides the REIT with visible rental income stability, which could possibly even grow in the future.
No. 1: In a sunrise industry
Topping my list is Sasseur Real Estate Investment Trust (SGX: CRPU). As a quick introduction, Sasseur REIT owns four outlet malls in China.
At its current price of S$0.80 per unit, Sasseur REIT has an attractive trailing distribution yield of 8.5% and a long runway of growth ahead of it.
In the first half of 2019, Sasseur’s total tenant sales at its malls increased by an eye-catching 19.9%. Given that between 4.5% and 5% of tenant sales are paid directly to Sasseur REIT, the growth in tenant sales will have a direct impact on the REIT’s bottom line and, ultimately, its DPU.
Besides organic rental growth, the REIT has one of the lowest gearing ratios among Singapore-listed REITs at just 29.7%. This puts it in an enviable position to make debt-funded acquisitions that can boost its DPU.
Yes, Sasseur REIT, like EC World, will be affected if China devalues its yuan further. However, the REIT is in a great position to grow, both organically and through acquisitions. Together with its high trailing yield, I believe Sasseur REIT has the best risk-reward profile in the S-REIT market now.
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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 Jeremy Chia owns shares in Sasseur Real Estate Investment Trust, First Real Estate Investment Trust, and EC World Real Estate Investment Trust. The Motley Fool Singapore has a recommendation for First Real Estate Investment Trust.
Motley Fool Singapore 2019