REITs have fallen out of fashion recently.
Lots of interest over growth stocks, China stocks, Crypto, but very little for REITs.
I love REITs, and they form a key part of my portfolio, so I wanted to address that today.
We’ll look at the 5 best small to mid cap Singapore REITs to buy now (in 2021).
To mix things up – No CapitaLand or Mapletree REITs, and 5% yield minimum.
Why only Small to Mid Cap Singapore REITs? Why no CapitaLand or Mapletree?
Now I get it.
Nobody wants to read a list of “Top 5 REITs to buy in Singapore” where the top 5 REITs are:
- Mapletree Commercial Trust
- CapitaLand Integrated Commercial Trust
- Ascendas REIT
- Mapletree Industrial Trust
- Mapletree Logistics Trust.
The large, blue chip REITs have been covered to death, and everybody knows about them.
In fact the last time I wrote an article on the best REITs to buy, I received a suggestion to “diversify away from writing about ah gong reits all the time?”.
Point taken :,(
So if you want a safe, 4% yielding blue chip REIT backed by a Temasek co, you can check out our previous article.
For today’s REIT list, we’re going to mix it up:
- No CapitaLand, Mapletree or Frasers REITs
- More than 5% yield (trailing twelve month).
There’s no free lunch in investing
You do need to know however, that there’s no free lunch in investing.
If you want a higher yield, you have to take on more risk.
There’s a reason why I keep talking about CapitaLand and Mapletree REITs on Financial Horse. They’re safe, they have a good sponsor, and they make money.
That’s why I buy so much of them.
But, for investors who already own a portfolio of “ah-gong” REITs, and are looking to add in more risk to their portfolio (barbell approach), you’ve come to the right place.
Sidenote on Barbell Approach: The way you do it is that you assemble a portfolio of safe blue chip REITs on one hand, and the riskier higher yielding small cap REITs on the other. And you weight the allocation to each depending on your risk appetite – to give you your desired yield and risk.
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5 Best Singapore REITs to buy now (Small – Mid Cap REITs) (2021)
Market Cap: $3.98b
Trailing 12 month yield: 5.51%
I know, I know.
Keppel REIT? Has FH lost his mind?
Personally I’m not a fan of Keppel REIT too.
I’ve never been a fan of their portfolio, and I’ve never liked the sponsor.
But then Keppel went ahead and announced they were buying SPH with $1.1 billion in Keppel REIT unit.
That’s a massively dilutive transaction, and Keppel REIT promptly sold off 15%.
There’s a saying in real estate where “There’s no such thing as bad real estate, only a bad price”.
At today’s price, Keppel REIT is probably worth looking at.
What I like about Keppel REIT?
Decent Office Portfolio
It’s not exactly a best in class portfolio like CICT, but it’s still a very solid office portfolio.
77% of Keppel REITs assets are in Singapore – big names like Ocean Financial Centre, Marina Bay Financial Centre, One Raffles Quay, Keppel Bay Tower.
With the rest spread between Australia and Korea.
Operational results are decent, with a broadly diversified tenant base.
What I don’t like about Keppel REIT?
Keppel as a Sponsor
I’ve never been a big fan of Keppel as a Sponsor. I think they’re fine, but not CapitaLand or Mapletree level.
Case in point – Keppel REIT recently acquired Keppel Bay Tower from their Sponsor (Keppel), with income support!
Sure the deal is DPU accretive (but NAV dilutive) even without rental support, but I never like it when a REIT does an acquisition with income support. You never really know if the yield will stabilise post-income support.
The CEO also recently announced that he would be resigning “to pursue other opportunities” which was interesting to say the least.
Dilutive impact from SPH Acquisition
And the big one – Keppel bought SPH for S$2.20 billion, to be satisfied with S$1.08 billion in cash and the remainder in units of Keppel REIT.
That’s $1.156 billion of Keppel REIT shares moving into the hands of SPH shareholders, who may just decide to sell them on the open market.
After this – Keppel’s stake in Keppel REIT will drop from 45.9% to 20%.
That’s massive, and shouldn’t be underestimated.
But price is good?
Because of all this – the price has sold off, and Keppel REIT is now trading at a 22% discount to book, and a 5.5% trailing yield.
The office exposure is going to be weak in the next few quarters because of COVID work from home trends, but at this price it could be worth averaging into a position.
Although the more cautious investors might want to wait for post SPH acquisition. Who knows what the SPH shareholders are going to do with their newfound Keppel REIT units?
LENDLEASE Global Commercial REIT
Market Cap: $1.08b
Trailing 12-month yield: 5.25%
What I like about Lendlease REIT
All 3 properties held by Lendlease REIT are great:
- 313@ Somerset, retail mall in Singapore
- Sky Complex, Grade A office in Milan
- Jem, retail mall in Singapore
313@ Somerset, retail mall in Singapore
313@Somerset is probably one of the better malls in Orchard today.
Very strong tenant mix, very unique target audience (younger crowd), and no single large anchor tenant exposure (unlike Starhill Global REIT with Takashimaya).
Direct link to Somerset MRT, and plans to redevelop the Grange Road open air carpark. What more do you want?
Always packed when I’m there too, but could just be me.
Sky Complex, Grade A office in Milan
Real estate is a local business, and not being Italian, I really cannot judge how good Sky Complex is.
That said it’s locked into a long term lease to Sky Italia (12 + 12 year), which provides very good stability – almost like a bond.
Jem – Need I say more?
Lendlease REIT will hold a stake of up to 31.8% in Jem going forward, which was overwhelmingly approved by unitholders. That’s about the strongest mandate I’ve ever seen.
Jem is just a fantastic mall, and if Lendlease REIT can hold 100% even better.
With Lendlease as the sponsor, there’s also a strong pipeline:
- The rest of Jem
- Paya Lebar Quarter
- Parkway Parade
All great malls.
What I don’t like about Lendlease REIT
The only problem with Lendlease REIT is the price.
I liked Lendlease REIT a lot more when it was in the 70s and 80s range, which it was at for much of the past 12 months.
But once the Jem acquisition was announced, I suppose it’s fair that this REIT should trade at a premium to book.
Market Cap: $2.02b
Trailing 12 month yield: 6.38%
What I like about ESR REIT
Logistics Exposure in Singapore
Logistics is really hot right now.
All that ecommerce demand has driven a lot of demand for logistics space.
For ESR REIT – 68% of the portfolio is split among Business Parks and Logistics space, so it benefits from such tailwinds.
The bulk of the portfolio is Singapore (2.2% Australia).
To give you an idea of how hot logistics is – ARA Logos Logistics Trust and AIMS APAC REIT are up around 58 per cent and 26 per cent respectively this year.
Both of which are significantly smaller than ESR REIT.
What I don’t like about ESR REIT
Sponsor (both a good and a bad)
The Sponsor ESR, recently announced a US$5.2b deal to buy ARA to create the world’s third-largest listed real estate asset manager.
ESR merging with ARA – I know most of you will have strong views on this deal. You’re either going to love it or hate it.
Personally, I’m in the camp of 1 + 1 = 2. If you merge it, it can’t be any worse than before right?
And scale is everything in today’s world, so there may even be a small net positive.
Yield is good
To put things in perspective, Mapletree Industrial Trust trades at a 4.4% yield, while Ascendas REIT has a 4.88% yield.
By contrast, ESR REIT is at a 6.1% forward yield today.
There’s really no free lunch in this world. There’s some drawbacks to ESR REIT, but you do get a higher yield to compensate for the risk.
Cromwell European REIT
Market Cap: S$2.2b
Trailing 12 month yield: 6.91%
What I like about Cromwell REIT
Exposure to Europe + Logistics
Cromwell REIT offers exposure to 2 big trends – Europe, and Logistics.
Logistics we talked about above, there’s just a huge tailwind for logistics globally given the ecommerce boom.
Europe on the other hand, is a tricky one.
My personal view, is that despite all the doom and gloom, Europe may actually do well in the short term. Europe is reopening, monetary policy is very supportive, and economic growth is picking up. All good signs.
Generally done well since IPO
Despite all the naysayers, Cromwell REIT has also done very well since IPO
What I don’t like about Cromwell REIT
Hard to assess the quality of assets
The problem though – all the assets are located in Europe.
Us being located in Singapore, we really cannot assess the quality of the assets the way a local can.
I’ve heard from certain investors that the assets are actually very high quality, and very modern. But I can’t confirm this.
Sponsor – Cromwell Property Group
Cromwell Property Group is a commercial real estate investment and management company with operations in Australia, New Zealand and Europe. The Group is in the ASX 200 list. At December 2020, Cromwell had a market capitalisation of $A2.3 billion, a direct property investment portfolio in Australia valued at $A3 billion and total assets under management of $A11.6 billion across Australia, New Zealand and Europe.
So they’re an Australian property player, with about A$11 billion of assets.
They’re no slouch, but they’re no Mapletree either.
6.9% yield is very strong
For all the risks – you do get a very strong 6.9% yield though.
But do note there is FX exposure for Cromwell REIT – you’re taking on Euro/SGD exposure.
Mapletree North Asia Commercial Trust (MNACT)
Market Cap: S$3.5b
Trailing 12-month yield: 6.2%
I know I said no Mapletree on this list.
But for the last slot, it came down to Mapletree North Asia Commercial Trust vs Starhill Global REIT.
Both offered very similar yields, and at current pricing I thought Mapletree North Asia Commercial Trust was the better REIT.
But anyway I’ll include both, and you can decide for yourself.
What I like about Mapletree North Asia Commercial Trust
Broad exposure to North Asia across asset classes
Mapletree North Asia Commercial Trust’s allocation is:
- 50% Hong Kong (Retail)
- 25% China (Office)
- 21% Japan (Office)
- 3% Korea (Office)
Pretty broad exposure to a mix of retail and office assets in North Asia.
FW: Festival Walk (HK); GW: Gateway Plaza (Beijing); SP: Sandhill Plaza (Shanghai); JP: Japan Properties; TPG: The Pinnacle Gangnam (Korea);
What I don’t like about Mapletree North Asia Commercial Trust
Rental reversion is an absolute disaster
The problem though, is that none of the assets are really best in class.
And it shows in the rental reversion, which is an absolute disaster:
Negative 34% and negative 27% for the 2 biggest assets in this REIT!
That’s really bad.
Mapletree + Decent yield
On the plus side, you get Mapletree as a sponsor, and a decent 6.2% yield.
Hong Kong should start to improve going forward too, so it’s possible the rentals have bottomed out.
But definitely a big point to watch.
Starhill Global REIT
Market Cap: S$1.4b
Trailing 12 month yield: 6.56%
What I like about Starhill Global REIT
Broad exposure to Singapore retail which is recovering
69% of the assets are in Singapore, and spread among 2 properties – Ngee Ann City, and Wisma Atria.
The tenant sales numbers below are pre-Phase 2 Heightened alert, but they still show a pretty remarkable recovery from COVID lows.
What I dislike about Starhill Global REIT
I know many investors out there think that Wisma and Ngee Ann City are old, unsexy assets that will not do well going forward.
And Ngee Ann city has big exposure to 1 anchor tenant (Takashimaya).
But remember the saying – no such thing as bad real estate, only a bad price?
At the $0.40s range, I thought the risk reward looked amazing, and I was loading up (see our 2020 article).
But at today’s $0.63, it looks much more fairly priced to me – at a 6.5% yield and 25% discount to book.
The Malaysia assets, and Wisma may also prove to be a drag going forward.
At today’s price, I would probably go with Mapletree North Asia Commercial Trust, which is why Starhill REIT fell out of the list.
Full Disclaimer: I hold positions in MNACT and Starhill Global REIT. Full portfolio available on Patreon.
Closing Thoughts: Rising Interest Rates – Impact on Singapore REITs?
And of course, the elephant in the room – are interest rates going up?
REITs are basically levered investments into real estate. So your biggest fear as a REIT investor is when interest rates go up.
So far at least, interest rates have been remarkably stable since their March peak at 1.7%.
Personally, I don’t think this will last. I still think the path forward is for tightening monetary policy, and rising interest rates.
That could potentially spell a lot of trouble for risk assets across the board.
Overweighting any one asset class in this climate is probably not healthy, and I’m quite widely diversified at this point to REITs, dividend stocks, growth stocks, commodities, gold, real estate etc. You can check out my full asset allocation and Stock Watch on Patreon if you’re keen.
But we’ll see.
Love to hear your thoughts! Any great REITs that I missed out from this list?
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As always, this article is written on 3 Sep 2021 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patron.
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