3 Singapore REITs to add to your watchlist

TL;DR

• Within Singapore REITs (S-REITs) space, investors can gain exposure to various asset classes such as retail, hospitality, office and even data centers.
• Frasers Centrepoint Trust (FCT) has a portfolio of retail malls located in residential estates which have seen improving tenant sales as COVID measures are eased.
• Capitaland Integrated Commercial Trust (CICT)‘s diversified portfolio across office and retail in Singapore offers stability, and its downtown malls could benefit if tourist arrivals into Singapore recover.
• Digital Core REIT (DCREIT) could benefit from the structural need for more data storage, and its low debt levels could offer acquisition opportunities.

Keen to dig more into Singapore REITs as you grow your dividend income? We introduce you to three REITs that fare well on our metrics of having good quality assets and low gearing ratio.

1. Frasers Centrepoint Trust (FCT – J69U.SI)

Owner of 9 retail suburban malls and 1 office block in Singapore such as Northpoint, Waterway Point and Changi City Point, FCT offers investors exposure to the populous residential estates community spending on essential services such as groceries spending, F&B etc.

Retail malls have been one of the hardest hit sector during COVID due to the dining in restrictions and safe distancing measures imposed by authorities. While the shopper traffic has only recovered to only 66%, FCT’s tenants sales is already 6% higher than pre- COVID level in 2019. Tenant occupancy rate remains very high at 97.2%. A further easing of COVID measures and recovery in tenant sales could help to drive rent reversions higher.

• Dividend yield: FCT’s current dividend yield is 5.4%, not too different to Mapletree Commercial REIT’s 5.3% and SPH REIT of 5.6%
• Gearing: At 34.5%, FCT’s gearing ratio is not considered high within the REITs sector
• What to look out for: Improvement in shopper traffic from any relaxation of safe distancing measures

2. Capitaland Integrated Commercial Trust (CICT – C38U.SI)

CICT is Singapore’s largest REIT in terms of market capitalisation of S$12.8b and is created in 2021 after the merger of Capitaland Retail Trust and Capitaland Commercial Trust. CICT consists of a well diversified suburban and downtown malls, as well as a portfolio of office building assets.

CICT is Singapore centric, with retail making up 58% of CICT’s revenue, while office accounts for 36%

Similarly to FCT, CICT’s retail malls have also suffered during the COVID-19. Tenant sales has since recovered to 87.8% of 2019 average levels, though shopper traffic is only 61.2% of 2019’s level. Tenant sales within CICT has lagged FCT, and is due to CICT’s downtown malls such as Raffles City and Clarke Quay which are more dependent on the tourists, compared to suburban malls.

While rent reversion was a negative 3.2% when the tenants renew their leases with CICT,  occupancy rate remains a healthy 96.8% suggesting there is unlikely further deterioration of rent reversion

For its office portfolio, the average rent of expiring lease in 2022 stands at S$9.09 and could remain negative in 2022 as lease negotiations take place. Similarly, the leases expiring in 2023 and 2024 are paying higher rent than the market rent rate would imply office portfolio rent could face negative rent reversion unless market rent recovers for the next 2 years. One silver lining is the office market rent are seeing 2 consecutive quarters of rent recovery

• Dividend Yield: 5.4% dividend yield
• Gearing: 37.2% which is not too high among the SREIT and CICT remains well funded
• What to look out for:

a) Improvement in shopper traffic from any relaxation of safe distancing measures

b) Rebound in tourists numbers in Singapore to benefit CICT’s downtown malls

c) Increasing contribution from CapitaSpring, a Grade A office building which will make full rent contribution in coming quarters. We should also continue to look at current office market rent to check if the improvement is sustainable.

3. Digital Core REIT (DCREIT – DCRU.SI)

DCREIT is the 2nd data center listed in Singapore, after Keppel DC REIT. DCREIT currently owns 10 datacenters property in North America with 100% occupancy. About 50% of their datacenters space is occupied by providers.

DCREIT was newly listed on 6 Dec 2021 and we will find out more from its first set of results post listing soon.

Dividend Yield: DC REIT is expected to have a 4.8% dividend yield for FY22

Gearing: At 27%, DC REIT has one of the lowest gearing ratio among the S-REITs, what it means that DC REIT will be able to acqueir datacenter assets using more debt which is cheaper than equity. This translates into potentially higher DPU accretion to shareholders when they acquire assets.

What to look out for: Acquisition of assets which can be accretive to earnings

What would Beansprout do?

To summarize, REITs allow investors to gain exposure to various themes such as growing consumption, tourist recovery into Singapore, or the structural need for more data storage.

Beansprout would look at the outlook of the portfolio assets to have a sense of the vacancy rate of the assets and rent outlook. We would also be mindful of the gearing ratio of the REITs.

Still not sure why you should consider looking at Singapore REITs? We explain how they can help to diversify your portfolio here.