As we kick start 2022 on a rough note with hiking interest rates, record-high inflation, war tension, and the ongoing pandemic, the stock market has been hit very hard, returning all its gains within the past 6-8 months. One particular asset class that will be impacted by rising interest rates will be real estate and more specifically REITs. Despite this, there are still a few fantastic opportunities in this niche within the local market. In this article, I will cover my top 5 exciting REITs to watch in 2022.
#1 Keppel DC REIT
To start, first on my list of REITs to watch in 2022 is Keppel DC REIT (SGX: AJBU), Singapore’s first pure Data Centre REIT but not the only one with the recent addition of Digital Core REIT. This is arguably Singapore’s most defensive yet fastest growing REIT, with Parkway Life REIT coming in for a close second place.
What’s The Bull Case?
KDC has made a couple of acquisitions and investments which were transacted towards the 2H of FY2021. As such, most of them were not able to meaningfully contribute to KDC’s revenue numbers. Coming into FY2022, other than the acquisition made in the UK, the other acquisitions and investments will be properly reflected in KDC’s revenue numbers.
On top of that, thanks to its well-established sponsor, they have plenty of opportunities to grow through potential pipeline assets. It is mentioned in their result release that KDC has over S$2b in terms of potential assets for acquisition through Keppel T&T and Keppel’s private data centre funds. It is also good to note that Keppel T&T has granted KDC the Rights of First Refusal (ROFR) for future acquisition opportunities to its data centre assets. Having a strong sponsor, on top of a huge ROFR pipeline, will help KDC secure a stable path for growth in FY2022 as they continue to expand their portfolio. Not to mention with their relatively low leverage and high debt headroom, KDC will likely continue to acquire more in FY2022.
If you are interested in Keppel DC REIT, you can check out my in-depth analysis here.
#2 Parkway Life REIT
Next on my list of REITs to watch in 2022 is none other than Parkway Life REIT (SGX: C2PU), Singapore’s only REIT that has never issued any equity ever since its IPO. The healthcare REIT is definitely a powerhouse that should be in every dividend investor’s portfolio for its overall defensiveness and growth potential.
What’s The Bull Case?
As Parkway Life REIT is a healthcare REIT, this means that they are relatively defensive as healthcare is a necessity, even more so in times like these. The REIT has consistently grown its DPU over the past few years without any major acquisitions or equity fundraising, which is great for shareholders who have held on over the years. On top of this, they have also hinted at a possible maiden acquisition into another developed market as they changed their general mandate in June 2020. It is good to note that with Parkway Life REIT’s current gearing of 35.4%, they have a debt headroom of S$410.7m before reaching 45% gearing and $686m before reaching 50% gearing. Not to mention that they can also do an EFR (Equity Fundraising), the sky is the limit for Parkway Life REIT.
If you are interested in Parkway Life REIT, you can check out my in-depth analysis here.
#3 Digital Core REIT
The third REIT on my list of REITs to watch in 2022 is a newly listed REIT, standing in the same asset class as Keppel DC REIT. Digital Core REIT (SGX: DCRU) might be an unheard name in the local scene but behind it stands, Digital Realty, which is one of the largest DC-holding companies listed on the US exchange. Its sponsor owns nearly 300 DCs across 26 countries.
What’s The Bull Case?
When we compare Digital Core REIT to KDC, we can see that Digital Core REIT does have a much stronger sponsor which can help boost its growth potential over the next few years as its sponsor can not only pipeline its own assets into the REIT but can also help open some doors/opportunities by getting involved and funding certain acquisitions that might be too big for the REIT to handle. The REIT has also fallen significantly from its IPO price of $0.93/share to its current last closing price of $0.76/share, an approximate 20% drop within a few months.
If you are interested in Digital Core REIT, you can check out my in-depth analysis here.
#4 Capitaland China Trust
Next up would be Capitaland China Trust (SGX: AU8U), a pure China-focused REIT that has recently changed its investment mandate from being a pure retail REIT to a mixed-asset REIT. With its new investment mandate, it has widened its investment scope to more real estate classes (office and industrial) as well as more geographic locations (Hong Kong and Macau).
What’s The Bull Case?
With the updated investment mandate, they can acquire not just retail malls but also, office and industrial properties. Not to mention, they can also acquire across Hong Kong and Macau as well, not stuck to just China assets. This huge change widens CLCT’s range of possible acquisitions, especially from their sponsor, Capitaland.
CLCT can now leverage on a much bigger pipeline from its Sponsor, with more than 80 assets that could be pipelined into CLCT just in China alone, not adding in assets that are in Macau and Hong Kong. This definitely presents a huge upside for CLCT in the long run and investors should start taking advantage of it before it runs much higher.
If you are interested in CLCT, you can check out my FY2021 results analysis here.
#5 Ascott Residence Trust
Last but not least, the 5th REIT on my list of REITs to watch in 2022 is Ascott Residence Trust (SGX: HMN)
What’s The Bull Case?
With its sponsor, The Ascott, recently acquiring Oakwood Worldwide, Ascott Residence Trust (ART) is a direct beneficiary of this transaction. Post-acquisition, ART will have a much wider variety of assets that could potentially be pipelined down to them in the near future. Some of the key assets that caught my attention are properties located in SEA as well as Japan and Korea because these countries fall within the Pan-Asia region, which ART is entitled to a ROFR should the sponsor decide to sell any of these properties in the future.
As of 31st March 2022, from ART’s 1Q 2022 business updates, we can see that ART has a gearing of 37.8% which is slightly high but thanks to its huge size (S$7.7B), this means that they have an approximate S$1.8B debt headroom. On top of that, their overall balance sheet is quite stable with a relatively low cost of debt at 1.6% p.a. as well as a decent interest coverage ratio of 3.5x. This means that ART is quite ready for large acquisitions should the opportunities present themselves. Not to mention the fact that they could also do an Equity Fundraising (EFR) which could open up even more doors for them, funding even larger acquisitions.
You can check out my full analysis here.
I believe that the stock market is heading towards the start of a new bull market with technology and disruptive innovation leading the way. This is why 3/5 of my REITs to watch in 2022 are industrial REITs with Hi-tech buildings and Data Centre assets. This gives me exposure to the head of the bull if the market starts to trend upwards as the economy starts to recover.
I personally have positions in 3 of the 5 REITs mentioned here, apart from Ascott Residence Trust which I bought and sold off in 2021 as well as Digital Core REIT which I am monitoring closely. I am very excited to see what happens in the later half of 2022 with all my picks. I am very confident in these REITs, with their ability to stay resilient, ride on the recovery wave, and still maintain a stream of cash flow for me to reinvest with. I also chose these 5 REITs, not for their high dividend yield or flashy numbers, but rather for their huge growth potential over the next 3-5 years.
As always, you can take a look at my portfolio updates to see my current positions! P.S. I’m running a telegram chat group for you guys to share and discuss investment-related topics so come on in! I’ll be there too! You can join the chat here: https://t.me/joinchat/D4iHeEVapnGC1lWcFEupVw
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