With interest rates slowly rising, it is getting harder for Singapore investors to find REITs that offer attractive yields above the government bonds. In Singapore, thanks to the CPF system, you get 2.5% (OA) or 4% (SA) yield risk-free just by investing your money in there. Of course, the largest disadvantage is that the funds aren’t very liquid and you can’t just withdraw the funds out as and when you please. In this article, I’ll be sharing 4 REITs that are yielding higher than the CPF SA and comes with an attractive upside for capital appreciation.
The selection criteria is fairly straightforward as the REITs have to qualify for all 4 points below.
- Dividend Yield > 4% (CPF SA Interest Rate)
- Growth Potential (Potential Capital Gains)
- Gearing Ratio < 35%
- Interest Coverage Ratio > 3.5x
#1 Ascendas REIT
Kickstarting our list of REITs is Ascendas REIT (SGX: A17U), Singapore’s first and largest listed business space and industrial REIT. In terms of market capitalization, Ascendas REIT is the largest listed REIT in Singapore right now with a market cap of over S$12B. With the REIT already being so huge, is it possible for it to continue growing?
With Ascendas REIT’s huge size, huge acquisitions are inevitable just like the recent one where they scooped up a S$960m portfolio of Data Centres in Europe. Not forgetting that the acquisition was DPU accretive by 1.3% or 0.189 cents.
With its huge debt headroom thanks to its large portfolio, they can access better deals and acquire entire portfolios as compared to doing smaller acquisitions at a time, which could be costly due to fees and such. Of course, Ascendas REIT won’t grow 10x over the next 10 years but the capital appreciation is still attractive in addition to its generous dividend yield.
Note : Chart figures are in S$ cents
As we can see, the overall 5-year trend for Ascendas REIT is up. This is due to the fantastic management that has been aggressively growing the portfolio through meaningful acquisitions as well as Asset Enhancement Initiatives (AEIs). It is not easy for REITs to be growing so consistently over such a long time frame which makes it even more impressive that Ascendas REIT has done so well.
Based on its last closing price of $3.06 and forward DPU of $0.14877 (0.14688+0.00189), Ascendas REIT is offering a decent 4.86% yield with potential capital appreciation over the long term.
#2 Capitaland China Trust
Second on our list is Capitaland China Trust (SGX: AU8U), a pure China Retail REIT which has recently updated their mandate, widening their investment scope to more real estate classes as well as more geographic locations. Let’s take a look into what investors can expect when investing in CLCT.
With the updated investment mandate, they can acquire not just retail malls but also, office and industrial properties. Not to mention, they can also acquire across Hong Kong and Macau as well, not restricted to just China assets. This huge change widens CLCT’s range of possible acquisitions, especially from their sponsor, Capitaland.
CLCT can now leverage on a much bigger pipeline from its Sponsor, with more than 80 assets that could be pipelined into CLCT just in China alone, not adding in assets that are in Macau and Hong Kong. This definitely presents a huge upside for CLCT in the long run and investors should start taking advantage of it before it runs much higher.
Note : Chart figures are in S$ cents
CLT’s dividend history looks good from FY2016-FY2018 with minor increases year over year but saw a deep dive in FY2019 and FY2020 which was further impacted by the pandemic. On the surface, this does seem really bad and investors should be cautious when investing in CLT but let me share why there is nothing to worry about.
Firstly, despite the drop in DPU from FY2018 to FY2019, if we exclude the DPU that came from Capital Distribution, the DPU actually increased slightly year over year from 9.60 to 9.80. Secondly, the REIT is now revitalized with a brand new mandate which opens up more doors for further expansion. Combined with the post-pandemic recovery of the Asia market, we can expect CLT to bounce back stronger and higher as it takes full advantage of its new mandate. With the addition of office and industrial assets, CLT’s portfolio will be further enhanced and diversified.
Based on its last closing price of $1.37 and TTM DPU of $0.0635, Capitaland China Trust is offering a decent 4.64% yield with huge capital appreciation over the long term.
#3 Ascendas India Trust
Third on our list is Ascendas India Trust (SGX: CY6U), Singapore’s first REIT that manages a full portfolio of assets in India. The REIT has not been receiving a lot of attention as the base currency (INR) has been falling against the Singapore Dollar, affecting the REIT’s performance. Let’s take a look at how well the REIT has performed thus far and whether or not there is still further room to grow over the long term.
AIT has kicked started 2021 with a bang, making many purchases and acquisitions over the past few months. In a short span of 2 months, AIT has proposed and acquired aVance 6 (16th February), proposed the forward acquisition of an Industrial Facility in Chennai (5th March), as well as a 1.65msf IT Park in Bangalore (29th March). It is also good to note that both forward acquisitions are DPU accretive by S$0.04 cents and S$0.13 cents respectively.
This is definitely great for shareholders but AIT still has a lot of room to continue growing with the Ascendas India Growth Programme, where its sponsor, Capitaland, is planning to more than double its Assets Under Management (AUM) in India to $7B by 2024, from its current $3.3B. As Capitaland acquires more assets in India, this expands AIT’s potential pipeline that it can acquire should Capitaland offer AIT Right Of First Refusal (ROFR).
With AIT’s potential pipeline being greatly widened on top of its already huge pipeline, investors can definitely continue to expect more acquisitions made by AIT as we move into 2Q 2021.
Note : Chart figures are in S$ cents
* = FY2019 is only from March – December (9 Months)
AIT’s dividend history is definitely on an uptrend if we were to look at it from its current financial period’s point of view (FY ends on 31st December, previously ends on 31st March). The DPU uptrend is very sustainable thanks to its highly defensive industry/asset class and will continue to increase in value over the long term as AIT grows its portfolio more.
Based on its last closing price of $1.52 and forward DPU of $0.09 (0.0883+0.0004+0.0013), Ascendas India Trust is offering a very attractive 5.92% yield with huge potential capital appreciation over the long term, possibly 2x or even 3x over the next 10 years.
#4 Prime US REIT
Last on our list is Prime US REIT (SGX: OXMU) is Singapore’s third US-listed REIT, recently IPO-ed in 2019 at US$0.88 apiece. The REIT has definitely performed extremely well, beating forecasts despite the rough market conditions.
As the global economy continues to recover faster, the demand for commercial spaces will soon start to bounce back to pre-covid levels as well. Prime US REIT is definitely well-positioned for the recovery as the US is slowly increasing its rate of vaccination. In addition to the recovery wave, there is still a lot of untapped potential that could be acquired across the next few years in the DFW (Dallas-Fort Worth) office market.
Based on the FY2019 Annual Report, there was 3.5msf in the pipeline to be completed over the next 12-24 months. With the REIT’s low gearing of 33.5%, there is sufficient debt headroom (US$303m) to grow the portfolio.
As compared to REITs in the same market, Manulife US REIT (MUST) and Keppel Pacific Oak REIT (KORE), Prime US REIT has a stronger portfolio with the lowest gearing and cost of debt as well as the highest interest coverage ratio and property yield.
As mentioned above and from the chart, we can see that Prime US REIT has done exceptionally well in FY2020, beating its forecast even during the pandemic which has definitely affected the office space market. Moving into FY2021, investors can expect similar or an even stronger performance as the economy continues to recover and the WFH trend is slowly transitioned out into the traditional back-to-office routine.
Based on its last closing price of US$0.84 and a TTM DPU of US$0.0694, Prime US REIT is offering a very attractive 8.26% yield with huge potential capital appreciation over the long term as they continue to ride the global recovery wave.
To sum up, the 4 REITs showcased in this article not only offers an attractive yield that beats the risk-free rate of 4% but also, room for capital appreciation as the economy continues to recover. The key benefit of investing in REITs as compared to bonds is the fact that there is still a capital appreciation factor that you have to account for.
Bonds will not grow in value over time and will only return you the same fixed yield over a 10 year or 30 year period. REITs and equities, on the other hand, can not only yield you an attractive dividend yield but also grow in terms of its share price. This is what makes REITs and equities so much more attractive than bonds, especially when the interest rate is still low.
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