Where would I invest $200,000 in Singapore REITs now? (2020)

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So I received this question from a REITs MasterClass member:


Thanks FH. 

I have a hypothetical question that if an investor were to invest SGD$200,000 into the SG Reits “today”.

Putting all what we learned in this course, for example diversifying into different sectors of Reits and geographical location, averaging in, etc …, and considering the current market condition and the share price of the Reits, with the risk reward basis, what would you recommend how to invest this sum?

I think it will be very helpful for me to see the big picture on what I learnt and also the application of new concepts from the course.

Thank you.


Amazing stuff.

I’ll share how I would invest $200,000 into Singapore REITs now, and hopefully that would help you guys in your decision making.

Rules for investing $200,000 into Singapore REITs

The reader didn’t provide the ground rules, so I’ll set some rules for the portfolio here:

5 year holding period – Average holding period is 5 years, and I have no plans to sell or flip REITs in the interim. It’s designed more as a passive buy and hold style portfolio rather than one that requires active monitoring

Medium to high risk appetite – Risk appetite is high. I am able to stomach short to mid term capital losses, as all the money going in is money I don’t need within these 5 years.

No existing REITs holdings – For simplicity’s sake, I will assume that I have no existing REITs – I am building a new REITs portfolio from scratch with this $200,000.

Which REIT asset class is the most attractive now?

I shared my views on the different real estate asset classes in an earlier article.

Very simply, I think Industrial (including logistics and data centers) is the most resilient asset class during this crisis, but unfortunately a lot of it has already been priced in.

I think hospitality (hotels and serviced residences) have a huge range of possible futures depending on how COVID19 plays out. For this reason, I would want a big margin of safety when buying into hospitality, which I don’t see in current prices.

And based on current pricing, I see the most opportunity in retail and commercial (office) REITs. I think high quality and well-located retail / commercial space will continue to remain relevant post COVID, and if I can get them at attractive prices, I definitely would.

How Important is a REIT Sponsor?

When investing in Singapore REITs, an age-old question is whether to go with (1) a blue-chip Sponsor (like CapitaLand/Mapletree) but accept a lower yield, or (2) a smaller, lesser known sponsor but get a higher yield in return.

There’s no right or wrong answer here, I know many people who go down route (2) with leverage and still make lots of money. It’s all about how you manage risk.

But because here we are building a buy and hold style portfolio, with little active management, route (1) makes a lot more sense to me.

With route (2) you need to monitor the portfolio aggressively, and be careful with your stop-losses – it’s not a portfolio for everyone.

And with COVID19, there’s still a lot of possible ways this can play out going forward. Better to be penny wise pound foolish, and stick to the high-quality sponsors where you know there is no insolvency risk.

An 8% yield can look good, but if you suffer capital losses you can easily lose 2 – 3 years of yield in a single day.

FYI we’ll share commentary on the 2020 crisis every weekend going forward, so for those of you who haven’t signed up for our mailing list, please do – its absolutely free.

It’s a weekly newsletter that goes out at noon every Sunday, and rounds up the week’s posts so you never miss anything.

Where would I invest $200,000 in Singapore REITs now?

Here’s how I would invest $200,000 if I were starting from scratch today:

  • Singapore Retail / Commercial
    • Mapletree Commercial Trust – $50,000
    • CapitaLand Mall Trust (post-merger CICT) – $25,000
    • Starhill Global REIT – $25,000
  • Singapore Industrial
    • Mapletree Industrial (or Ascendas REIT) – $25,000
  • Asian Retail / Commercial
    • CapitaLand Retail China Trust – $25,000
    • Mapletree North Asia Commercial Trust – $25,000
  • Wildcard
    • Mapletree Logistics – $25,000

Let’s dive into the details.

Singapore Retail / Commercial – $100,000

Mapletree Commercial Trust (MCT) and CapitaLand Mall Trust (CMT) – $75,000

Mapletree Commercial Trust (MCT) and CapitaLand Mall Trust (CMT) need no introduction. They are 2 of the largest and best-known REITs in Singapore.

MCT is a retail, business park and office Singapore REIT, with exposure to best in class assets in Vivocity and Mapletree Business City.

CapitaLand Mall Trust is a retail REIT with some of the best malls in Singapore like Plaza Sing. Post-merger with CapitaLand Commercial Trust (CCT), creating CapitaLand Integrated Commercial Trust, they will also have exposure to best in class office assets like Asia Square and CapitaGreen.

And you can get both MCT and CMT at close to book value now.

If I were building a REIT portfolio from scratch today, this would be the backbone of my new portfolio. Hence the 37.5% allocation to these 2 REITs.

Starhill Global REIT – $25,000

I also wanted to added a bit more risk into the Singapore portfolio. And I thought the most attractive play to me was Orchard retail.

Retail malls in Orchard Rd have been hit very badly because of the ban on tourism. Personally though, I think if one can hold for a 4 to 5 year horizon, there is a decent chance of recovery here.

This makes orchard malls interesting to me, especially if I can find good quality properties with low insolvency risk, at a great price.

I just accept a low 2 to 3% yield worst case during this period, but when COVID goes away and tourism recovers, there’s potentially a lot of capital gains upside.

ION Orchard is a mall I really like but unfortunately has not been injected into a REIT (part owned by CapitaLand).

That leaves a couple of options: Lendlease REIT (Somerset 313), Starhill Global REIT (Ngee Ann City, Wisma Atria), SPH REIT (Paragon).

It was a toss-up between Lendlease REIT and Starhill Global for this spot, and I went with Starhill Global because of pricing. Lendlease looks a bit pricey at this price, but that said I do like Lendlease as a sponsor.

Ngee Ann City and Wisma are some of the more iconic properties on Orchard Road (especially the former). I like to believe they will remain relevant going forward, and at this price (45% discount to NAV), I think the risk-reward is good.

Singapore Industrial – $25,000

Mapletree Industrial Trust – $25,000

I like industrial, but not at the current prices they are trading at. A pure industrial REIT from a blue chip sponsor trades at about a 50% premium to book (eg. Ascendas REIT), and if you mix data center exposure in, it’s a 100% premium to book (eg. Mapletree Industrial Trust).

And you only get about a 4% yield.

It’s an okay investment, but nothing to shout about.

For portfolio building purposes though, it is still wise to add in some exposure for diversification.

It was a toss-up between Mapletree Industrial Trust and Ascendas REIT for me. I picked Mapletree Industrial Trust for this list, but both are pretty close to be honest (the former comes with more data center exposure if you’re into that).

Asian Retail / Commercial – $50,000

CapitaLand Retail China Trust and Mapletree North Asia Commercial Trust – $50,000

CapitaLand Retail China Trust and Mapletree North Asia Commercial Trust are 2 of the top 3 REITs I selected in a recent post.

Nothing much has changed since, so $50,000 goes into these two REITs.

I like the prices, I like the real estate, and I like the Sponsor. That’s really all you can ask for.

Wildcard – $25,000

Mapletree Logistics Trust – $25,000

This left $25,000 as a wildcard play.

I eventually decided to go with Asian logistics in Mapletree Logistics Trust to provide some balance to all that retail exposure.

That said – MLT is not cheap now at a 50% premium to book and a 4% yield.

So ultimately, I think this last one will have to depend on personal risk appetite.

I can potentially see myself swapping this one out for some hospitality exposure, or exposure to bond proxies.

Hospitality REITs

My main problem with hospitality is that I genuinely don’t know how COVID is going to play out. And even if I know how COVID plays out, I don’t know how governments will react.

For example – if you buy Singapore hotels, you need to know how the COVID situation in Singapore will play out. You then need to know the Singapore government’s policy on tourism (eg. can all nationalities come in, do they need to quarantine etc). You then need to know other countries’ policy on Singapore travel (eg. do their citizens need to quarantine when returning from Singapore etc).

That’s a lot of uncertainties.

Sure, I can just take a punt that things will recover eventually, and buy in anyway. But if I do that, I do want a decent margin of safety.

If I were to go into hospitality though, my two top choices now would be Far East Hospitality Trust and Ascott Residence Trust.

But both are only at about 30-35% discounts to book value now.

That’s okay, but ideally, I would want a bigger margin of safety.

It’s really a personal choice though. Some people may want to throw in the hospitality exposure, and I think that’s perfectly acceptable.

Bond Proxies – Parkway Life, Netlink Trust, Elite Commercial REIT

There’s another class of REITs that are better classified as bond proxies.

These are REITs that hold real estate locked into long term, multi-year leases, with a counterparty with very low credit risk.

This means you get very little rental upside (because the leases are locked in), but you get ultra-stable distribution yields.

Because of this, this kind of REITs usually tend to trade more in line with fixed income products.

Some examples will be Parkway Life REIT (Parkway Group Hospitals), Elite Commercial REIT (Offices leased to the UK government), and Netlink Trust (holds fibre and not real estate, but has a similar bond proxy effect).

The last $25,000 can go into this area as well for those who are risk averse and want a stable yield.

The only thing I would note about this category is that they are doing very well now because we are in a risk-off, low yield regime.

If everything flips into risk on mode, or if inflation starts to rear its head, this asset class is going to underperform. So you do want to be careful when overweighting this category.

Heavy Weightage to Retail

One thing to note is that about half of this portfolio is retail properties.

Not everyone may be comfortable with that, so feel free to adjust the proportions accordingly based on your own risk appetite.

Short term, the market can go anywhere

I had a recent query from a reader that illustrates this point well:


Hi FH,

Hope you’ve been well!

This might be a common/cliche question but just wanted to hear your opinion before I make a decision. I recently bought into Apple stocks and I do feel that it was overvalued at that point, but decided to do it as I feel the fundamentals of the company was still very sound (e.g. Revenue, cash reserves, future growth etc.)

However, I bought it right before the recent retracement which made me doubt my decision. I believe the stock would bounce back to new highs in the future, but in this instance would it be wiser to hold or sell-off and re-enter at a lower price?

I understand that there’s no way of timing the bottom and the right thing to do would’ve been to enter slowly previously and averaged down on hindsight. I’m also pretty new so probably not really knowledgeable about the broader market trends, hence turning to you to make a more informed decision.


This market is now very liquidity and sentiment driven.

I mean, just look at the NASDAQ chart below.

Back in March, macro was king. Macro signals were useful to guide investment decisions, which is why we had that whole series of 3 buy signals to watch out for.

The market has now evolved to a point where it’s driven mostly by momentum, by sentiment, and by liquidity.

This makes it very hard to predict. Macro signals can tell us the longer term direction, but they are of little use in predicting the day to day.

Like we saw this week, the market can turn down suddenly, even without any fundamental news at all.

Technical signals can be useful to a certain extent, but frankly speaking, nobody knows where the market will be 1 week from now.

So in this kind of markets, some caution is warranted, which is why personally I’ve been averaging into the market instead of doing lump sum investing.

And for this hypothetical $200,000 REIT portfolio, I don’t see any reason to deviate. Averaging in just makes the most sense to me here. It spreads out the risk over a period, and helps you build an average price based on where REITs trade over the next 6 to 12 months.

As always, this article is writte on 11 Sep 2020 and will not be updated going forward. Latest thoughts (and my stock watch / personal portfolio) are available on Patron.

Love to hear your thoughts! How would you invest $200,000 into Singapore REITS now?


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17 COMMENTS

  1. Hi FH

    Noticed that you did not include the Frasers family REITs. Is there any reason in particular? Or simply because Mapletree and Capitaland are just a notch above? Thanks.

    • Personally I prefer the Mapletree/CapitaLand group of Sponsors, so I went with them.

      That said, Frasers is a pretty solid sponsor as well, so I can see why investors will want to go down that route as well. 🙂

  2. Thanks for your articles – they are always so insightful 🙂

    Will you recommend using Syfe for their Reits portfolio given I only have about $20k to invest? Thank you so much!

  3. What are your thoughts on Keppel DC? Yields are low but COVID hasn’t impacted operations, they have more expertise in data centres and good accretion potential. MINT has a fair bit of SME and factory exposure that’s been impacted by the crisis and rent arrears have ticked up significantly. Of course you could own both, but if investors are specifically interested in data centre exposure, KDC seems like a better option right now.

    • Yeah that’s a good point. Keppel DC can potentially replace MINT here, so I do agree with you on this.

      I’m not so sure about data centers longer term though. Keppel DC is already looking expensive (or at least fairly valued) at 2.8% ttm yields. Sure, if things go really crazy, some of the US DC REITs are trading at 6x book value and 1.5% yields so maybe Keppel DC doubles or triples from here, but then we’re starting to go into 2007 territory there.

      And with Data Centers, there’s actually not a lot of technical expertise required / value add from a real estate perspective. Much of the value comes from the software and code that runs on the servers, or on the actual hardware themselves, and less on the real estate owner. Longer term, new supply will also come online.

      Short term though, agree that they are looking pretty strong.

  4. Thanks for your enlightening article. Would you be able to elaborate more on Elite Commercial Reit which is relatively new? Regards

    • I think those can be used for short term trading / flipping opportunities. For long term buy and hold, getting a good sponsor is really important.

  5. Understand that the gov has effectively suspended landlord action(evictions) until Oct.
    Would it not be a good idea to wait until then to enter?

    • I think a good argument can be made that most of that impact is already priced into the stock. But I get your point, let’s see how it plays out.

  6. Hi FH,

    I enjoy your writings as usual. However, in this article, with the exception of Mapletree Industrial Trust and Mapletree Logistics Trust, all the selections are mainly retail focused which I feel is rather risky.

    While they will likely recover somewhat after Covid is over, there are some secular challenges to consider. We are seeing department stores around the world file for bankruptcy, from high end ones like Niemen Marcus to low end ones like JC Penny. If Takashimaya follows the trend, will Starhill Global be able to find a replacement for Ngee Ann City? The departure of Takashimaya is definitely well within the realm of possibility as no traditional department store is doing well anywhere in the world.

    Similarly, I have found to my surprise a fair number of permanently shuttered stores even at neighbourhood malls like Junction 8 and Tampines Hub walking through them over the last couple of weeks, and this is likely to continue as F&B outlets burn through their reserves and find it hard to stay solvent. Even VivoCity is looking at the loss of Topshop closing. So the risk of lasting damage, at least for a year or two is pretty significant.

    As such, I would like to challenge you to a modified question. If you were to allocate 200K into REITs today excluding retail REITs, where would you put your money?

    Thanks!

    • Hi Chan Mali Chan,

      It is good to hear from you again! 🙂

      Really good question as usual, and I can see where you’re coming from. I genuinely think that the best opportunities lie in high quality, well located retail malls and offices right now, especially if you stick to cities with good long term prospects and no oversupplies (US is not one of those because US is very oversupplied from a retail perspective).

      If we take out retail (and I presume hospitality as well), then we’re really only left with Industrial, Data Centers and Healthcare. All of which are very fully priced at the moment, with about 3.5% to 4% yields. At these kind of prices, capital gains will not be amazing. Probably a portfolio with Parkway Life, Netlink Trust, Mapletree Industrial, Mapletree Logistics, Ascendas, and Keppel DC might do the trick. Elite Commercial REIT could make the cut too.

      But the way I see it, a portfolio like that would deliver much lower returns in the mid to longer term, because they’re already pretty fully valued now. If it were me, I think the retail and office exposure will still be crucial for a balanced REIT portfolio. Especially with something like CMT or MCT, the properties are so well located that longer term, I am confident of their recovery.

  7. Thanks for the detailed reply, FH.

    Yes, I see your points. Having said this, what if we broaden our horizons to REITs holding primarily non-SIngapore assets or even foreign REITS.

    A few examples

    1. Cromwell REIT – while I know from your previous posts that you are not enamoured of their sponsor, their sponsor is constantly being pursued by ARA and could be acquired by them in the not too distant future. ARA has again increased their stake by buying over Singhaiyi’s stake. On the REIT itself, it is pretty diversified across logistics and offices in several European markets and performance in terms of growing portfolio and maintaining DPU in this crisis is pretty good.

    2. iREIT – similar to Cromwell in being European focused but with more concentrated properties albeit with Blue chip renters and CDL as a sponsor. They have said they would do yield dilutive acquisitions though and have just done a big one but may stablise in the future.

    3. Keppel Pacific Oak, Manulife US and Prime US REIT – focused on US office market.

    4. Link REIT – down almost 40% from peak and holding good quality HK assets.

    Think these are much less fully valued than the Mapletree, Keppel DC, Parkway REITs which are even more expensive on a P/B basis than before Covid and also less exposed to the retail wipeout that is happening in many countries.

    • Yeah I see what you mean CMC.

      My views are:

      1 and 2. My concern is that by going into names like Cromwell / IREIT, it’s taking on a different kind of risk (Sponsor related), that may not necessarily be lower than Retail REITs (asset class related). It’s definitely workable, but one needs to be aware of the risks being assumed. And as mentioned, for me personally, I rather take the risk with high quality Singapore retail assets from a good sponsor, esp if I can get them at a decent price.
      3. I am concerned about the short term prospects of US real estate. Lots of scary moves in the CMBS market. It’s probably ok if you do a deep dive and pick the right properties and the right sponsor, but if the entire sector drops they will still get hit. I’ve exited all my US real estate exposure since current prices are really attractive.
      4. I like Link, but it’s retail asset class. Like you said, short term retail is not in the best place, it has to be a mid term holding.

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