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How Singapore REITs Can Help You Beat Inflation

REIT Graphic
REIT Graphic

Unless you have been living in a cave, inflation has been the talk of the town.

Singapore’s core inflation has risen to a decade-high in March at 2.9%.

Meanwhile, the headline consumer price index (CPI), which includes accommodation and private transportation, came in at 5.4% year on year.

You may not need these headline figures to tell you that prices are rising.

You experience it first-hand when you visit your nearest hawker centre or coffee shop.

The situation is even more pronounced in the US, with consumer prices surging by 8.3% year on year in April, hovering near four-decade highs.

We have no control over how high prices can rise and how long inflation will last.

But we can certainly choose our response.

One solution is to invest in Singapore REITs.

Here’s how and why you should do so.

The attractiveness of REITs as income vehicles

Why are REITs such attractive vehicles for passive income?

The main reason is because of the requirement for REITs to pay out at least 90% of their profits as distributions to enjoy tax benefits.

Furthermore, REITs own a portfolio of physical properties that generate stable and predictable rental income.

This rental income is unlikely to be disrupted unless the tenants face financial difficulties or if there is damage to the properties; both being unlikely events.

Hence, REITs qualify as suitable investments for income investors as they churn out a consistent flow of dividends.

REITs with great track records

But not every REIT is built the same.

The idea is to find REITs with great track records in increasing their distribution per unit (DPU)

Take Parkway Life REIT (SGX: C2PU) for example.

The healthcare REIT, which owns 56 properties worth around S$2.3 billion as of 31 March 2022, has reported uninterrupted increases in its core DPU since 2008.

From 2008 to 2021, Parkway Life REIT’s core DPU increased from S$0.0683 to S$0.1408, for a compound annual growth rate (CAGR) of 5.7%.

Similarly, industrial REIT Mapletree Industrial Trust (SGX: ME8U), has also raised its DPU without fail since 2012.

DPU went from S$0.0841 in fiscal year (FY) 2011/2012 to S$0.138 for FY2021/2022, for a CAGR of 5.1%.

With DPU growing at such healthy clips, you would stand a better chance of beating inflation which runs at an average of 2% to 3% over the long term.

An inflation hedge

Many REITs are also good inflation hedges as their distribution yield exceeds even the decade-high core inflation rate.

Mapletree Logistics Trust (SGX: M44U) is one such example.

The logistics REIT reported a DPU of S$0.08787 for its FY2021/2022, and its units provide a trailing distribution yield of 5.3%.

Meanwhile, retail and commercial REIT CapitaLand Integrated Commercial Trust (SGX: C38U) paid out a DPU of S$0.104.

Its units provide a distribution yield of 4.6%.

Resilient and forward-looking

Well-managed REITs are also resilient, with a forward-looking REIT manager who is able to expand beyond its original portfolio.

Retail REIT Frasers Centrepoint Trust (SGX: J69U), or FCT, illustrates this point well.

DPU fell from S$0.1207 to S$0.09042 from FY2019 to FY2020 due to the lockdowns and movement restrictions arising from the pandemic.

However, the REIT responded with a major acquisition in October 2020 and saw its DPU rebound sharply to S$0.12085 in FY2021, exceeding its pre-pandemic level.

Fast forward to the first half of fiscal 2022 ended 31 March 2022, and FCT has reported a 1.5% year on year increase in gross revenue while DPU has edged up 2.3% year on year to S$0.06136.

What’s more, tenant sales have surpassed pre-COVID levels and a further uplift is expected as Singapore eases more restrictions late last month.

The presence of a strong sponsor in Frasers Property Limited (SGX: TQ5) and the manager’s proactive stance to acquire more heartland malls to boost resilience has paid off well for FCT.

Get Smart: Park some money in REITs right now

The solution can be simple but requires research.

Parking your money in strong, well-managed REITs can help you beat inflation over the long term.

Meanwhile, many REITs such as Keppel DC REIT (SGX: AJBU) and Mapletree Industrial Trust are touching their 52-week lows.

The opportunity to invest is tantalising.

But it’s advisable to pace your purchases and buy slowly to avoid running out of cash.

Your future self will look back and thank you for your actions today.

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Disclaimer: Chin Hui Leong owns shares of ParkwayLife REIT, CapitaLand Integrated Commercial Trust, Frasers Centrepoint Trust, Mapletree Logistics Trust, Mapletree Industrial Trust and Keppel DC REIT.

The post How Singapore REITs Can Help You Beat Inflation appeared first on The Smart Investor.