Singapore REITs Focus: Best Commercial REITS to invest in Singapore 2017
Commercial REITS have been a vibrant REIT segment in Singapore this year. Many analysts are foreseeing an uptick in demand for Grade A office buildings, which would be source for higher bargaining power for prime real estate owners.
Commercial REITS typically own Grade A office buildings in major Central Business District all over the world and engages professional management i.e. office building managers to manage the whole operations of the building from sourcing tenant, implementing asset enhancement initiatives, marketing and rental collection. These office buildings are usually hand-picked by the REITs with emphasis of location, building age, scope for enhancement and pricing. A great management will ensure steady stream of tenancy renewal which translates into steady stream of dividends that the REITs are able to distribute to unit-holders. SGX alone is home to 8 office REIT listings that derived more than 80% of their rental income from office buildings.
REIT investors do not trade frequently and a prudent strategy is to hold out over the long term and closely monitor the asset quality and occupancy trend. Most importantly, investors are able to receive their semi-annual of quarterly dividend payouts and help investors realise their investment goals and financial objective.
The price performance of these REITs during the past 1 year had been remarkable. The share price of the 8 office REITS as tabulated below have witnessed on average 11% gains in share price alone. Coupled with average annual dividend yield of 5% to 6.6%, investors would have reaped a total of a minimum of 15% gains on invested capital over the past 1 year.
|SGX Commercial REIT||Dividend Yield||% gain 2017 YTD|
|Capitaland Commercial Trust||4.03%||23%|
|Frasers Commercial Trust||6.01%||13%|
|Manulife US REIT||6.07%||10%|
|OUE Commercial REIT||6.40%||3%|
|Keppel-KBS US REIT^||6.8%*||3%|
|^ listed on 9 November 2017|
Capitaland Commercial Trust
Capitaland Commercial Trust is one of the top commercial REIT performers in Singapore with total returns in excess of 20%. Its properties are mainly concentrated around Singapore’s Central Business District, around Raffles Place and Marina Bay area, and has an 18% stake in Malaysia listed commercial REIT MRCB-Quill REIT. Asia Square Tower 2, CapitaGreen and HSBC Buildings are some Grade A office buildings under its wings and occupied by high profile global Multinational Companies. Its tenant mix is top notch paymasters and has served its unitholders well via regular dividend distributions. Capitaland is also Singapore’s top property developer with strong property development expertise. Its Q3 2017 results were fairly positive with a 2.6% increase in DPU due to contribution from CapitaGreen.
Keppel REIT, another office REIT with a slight global presence and exposure with prime commercial assets scattered over Singapore and Australia has registered strong price performance in 2017. The joint owner of Marina Bay Financial Center, One Raffles Quay and Ocean Financial Centre does not boast huge number of properties but distributions has been stable with their properties’ strategic location. Latest 3Q 2017 results has not been the best with a 13% fall in DPU but analyst remained upbeat on recovery of Grade A office rents.
Keppel-KBS US REIT
Keppel-KBS US REIT is a new addition to the SGX commercial REIT family and is a US office REIT. Performance since listing has been remarkable with the public offer being oversubscribed by almost 7 times. Investors now have the option to obtain US office market exposure via Keppel-KBS US REIT. The REIT has a forecasted DPU of 6.8%, slightly higher than most commercial REITS in SGX which saw investors bidding up the price to current levels of USD0.91 per share.
Manulife US REIT
Another US office REIT which debuted in SGX not too long ago is Manulife US REIT. Investors considering diversification into US office REIT can turn to Manulife US REIT where its prime office assets are backed by near full 95.7% occupancy rate as at 30 September 2017. The REIT registered strong Q3 2017 performance with actual DPU coming in at 10% higher compared to forecast. Net property income came in 20% higher compared to forecast and the REIT has outperformed in all key forecast metrics. Price performance has followed suit with a sweet 10% gain YTD in 2017. Yield remains highly favourable at 6.07% per annum, with room for growth.
Suntec REIT has a similar property profile geographical-wise compared to Keppel REIT where its properties are located both in Singapore and Australia. Suntec REIT does not only own Suntec Singapore, a well-known convention district among locals, but has stake in One Raffles Quay, Marina Bay Financial Tower and 9 Penang Road. The price performance has mirrored closely to that of Keppel REIT with a 17% capital gains YTD. Q3 2017 financial performance remained fairly stable with slight dip of 2.1% in DPU on the back of improving performance by Suntec Singapore. Recovery of Grade A office rates will be a boon to Suntec Singapore as well.
Frasers Commercial Trust
Frasers Commercial Trust is another commercial REIT which offers higher than average yield despite a more than 10% price gains in 2017. Its property profile is slightly unique, besides having plain office buildings it has Alexandra Technopark under its ownership and management. However, the anchor tenant Hewlett Packard Singapore has plans to vacate part of the premise which leaves Frasers Commercial Trust to source for new tenant for income replacement. Investors may monitor the situation closely as Alexandra Technopark currently contributes about 34% to overall net property income.
IREIT Global does not enjoy the same kind spectacular price performance in 2017 but managed to eke out a decent 6% capital gains. It has the highest distribution yield at current trading prices which may signal undervaluation. IREIT Global’s commercial properties are located mainly in Germany. Its Q3 2017 results were decent, chalking up a 3% gains in Net Property Income. Investors who see potential in European real estate markets may take a closer look into this REIT that operates campus style commercial buildings.
OUE Commercial REIT
OUE Commercial REIT did not register double digit % price gains as well but nevertheless ended the year 2017 YTD with a 3% gain. Its DPU suffered a huge drop at 12.9% compared to prior year’s distribution as a result of private placement dilution. Total distribution income was a tad higher with 3.8% growth supported well over 95% occupancy rate in its key buildings namely One Raffles Place, OUE Bayfront and Lippo Plaza. Its current yield of 6.4% makes it an attractive REIT that may be under-appreciated by investors.