Top 8 Business Trusts to invest in Singapore 2018
Publicly listed Business Trusts in Singapore are another form of investable instrument available for public investors which can potentially provide defensive returns in terms of regular distributions, and would be a good addition to investor’s portfolio for the mid to long term. Key features typically found in business trusts are regular income distributions and high payout ratios due to non-restriction on dividend distribution based on accounting profits and backed by defensive and stable growth businesses.
With a huge diversity of listed business trusts (16 in total) on SGX, we delve into the top 8 business trusts that stand out among the pack, coupled with the strong reasoning behind the picks where these business trusts are expected to shine in 2018.
|Singapore Listed Business Trusts||Distribution yield|
|Dasin Retail Trust||8.28%|
|CDL Hospitality Trust||5.91%|
|Far East Hospitality Trust||6.31%|
|Frasers Hospitality Trust||7.26%|
|OUE Hospitality Trust||6.58%|
|Ascendas Hospitality Trust||7.51%|
|Netlink NBN Trust||5.70%|
|Keppel Infrastructure Trust||7.15%|
Dasin Retail Trust, a business trust with shopping mall assets in Guangdong, China, would make a good investment case for investors seeking exposure to rising middle class retail spending. Q1 2018 earnings and DPU did not disappoint, rising 86% and 23% respectively, mainly due to earnings contribution from recently acquired Shiqi Metro Mall. Distribution yield is at a whopping annualized 8.28%, which may signal undervaluation on the back of improving retail rent growth. Its sponsor Zhongshan Dasin Real Estate Co. has a strong track record as a property developer and retail mall operator.
CDL Hospitality Trust is a property focused hospitality trust with prime hospitality real estate assets located in major top tier cities such as Munich, Tokyo, Cambridge and our very own Singapore. It actually comprises both REIT and business trust under its wing, making it a stapled security. Hospitality industry is very much the lifeblood of Singapore’s economic growth and participating merchants and hospitality property players has been enjoying steady business from business and leisure traveller. Hotel room supply easing may provide the much needed catalyst for hoteliers with a heavy concentration of portfolio in Singapore to improve occupancy rates. Q1 2018 earnings results for CDL saw net property income increase by 5.4%. The much scrutinised metric DPU edged up 7.4% excluding rights issue. Management is optimistic of the turnaround for Singapore hotel sector and asset enhancement works (AEI) will be undertaken to beef up the property profile condition to pristine levels. Current dividend yield of 5.9% would provide investors a healthy return on investment annually.
Far East Hospitality Trust is another top business trust specializing in the hospitality sector, owning 47 hotels and 47 serviced residences in 7 countries. Its properties are concentrated in 2 key markets Singapore and Australia. The improving Singapore hotel sector will be a boon to the Trust. DPU rose 1.1% in Q1 2018. Both revenue per hotel room and serviced residence unit rose 3.3% and 7.6% respectively, signaling overall improving market conditions for hospitality players. Its 6.3% distribution yield will provide investors much needed income cushion.
Frasers Hospitality Trust is one of the hospitality trusts contributing to the overall vibrancy of Singapore business trust market. It is a pure play hospitality trust with some serviced residences portfolio, and is globally diversified with 15 properties in 9 cities. Intercontinental Singapore is one of its local holdings, with Sofitel Sidney Wentworth and Park International London as part of its overseas hospitality assets. Its Q2 2018 DPU fell 7.8%, due to weaker performance from its Australia portfolio. Moving forward, its growth engine will kick in full force from the recent acquisition of Novotel Melbourne and Maritim Hotel Dresden and investors can look to stronger performance recovery from its Singapore and Japan assets. It is currently offering an attractive 7.26% yield per annum.
OUE Hospitality Trust would also make an excellent business trust investment should investors want a Singapore pure play hospitality trust. Its property portfolio comprises solid 5 star hotels namely Crowne Plaza and Mandarin Orchard. Its dividend yield is one of the highest offered at 6.58%. Singapore tourist arrivals had been on a steady uptrend over the many years up till 2016 with the Singapore government constantly seeking new inputs to attract tourist dollars. The hotels are upscale hotels catering to well-heeled tourist whom are less price sensitive and values great top notch hospitality hotel service. OUE Hospitality is well positioned to reap solid occupancy from these tourist segments. Q1 2018 DPU fared modestly with a slight 3.1% drop, but a consistent theme is currently in play where hotel market fundamentals are improving. Management is on the hunt for good quality hospitality asset.
Ascendas Hospitality Trust, another stapled security with a combination of Ascendas Hospitality REIT and Business Trust, is another hospitality focused trust suitable for investment. It has 10 hotels scattered across Singapore, Japan, Australia and South Korea. It has recently been busy pursuing new acquisitions, latest being 3 new hotel purchases in Osaka, Japan for S$126million. March 2018 quarterly earnings came up well with DPU rising 25%, and performance across all geographical segments are expected to be stable. The trust currently trades at 7.51% distribution yield, highest among all Hospitality Trust in focus.
NetLink NBN Trust is another trust worth investing. Its high profile IPO in mid 2017, a spin off from parent company Singtel has made headlines in the past year. It is a business trust engaging in the business of designing, building and operating passive fibre network infrastructure which supports the delivery of high speed broadband and internet access. Its distributions are supported by recurring fibre connection revenue, while topline growth would come from increased fibre installations. Its March 2018 quarter ending profit was below IPO forecast by a margin of 6.4%, but distribution is well within projections with a targeted distribution yield of 5.7%. Potential 5G network technology commercialization is part of the trust’s roadmap for growth.
Keppel Infrastructure Trust is another business trust with solid recurring cash flows from its underlying ownership of infrastructure assets such as Keppel Seghers Ulu Pandan NEWater Plant and City Gas. Q1 2018 net profit was commendable, rising 11%. DPU was stable at 0.93 cents, giving an effective annual yield of around 7.15%. Its City Gas improved performance was the contributor for increased revenue and profit for the quarter. Investors having a position in Keppel Infrastructure Trust are getting into the exposure of recurring income from long term contracts secured for the generation of essential commodities namely gas, water and electricity.
Business Trust investors should not expect massive capital gains overnight, but to hold a long term view of the underlying company’s asset prospects in generating recurring revenue over the long run and reaping the investment returns via regular and recurring distributions. Investing is business trust has many similarities compared to direct real estate investment, but without much of the professional tenant management technicalities. Business Trust could enhance an investors’ investment portfolio and remains one vital asset class for income seeking investors.