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Best S-REITs in Singapore 2024 for Your Investment Portfolio

Alevin Chan

Alevin Chan

Last updated 14 February, 2024

After a tumultuous few years, S-REITs are recovering and getting back in the favour of investors. We discuss some metrics that help you evaluate their investment potential, as well as four S-REITs that performed well in 2023 that you should keep your eye on.

Real Estate Investment Trusts (REITs) allow investors to invest in real estate without high capital outlay. Different REITs offer a composition of properties serving different uses, allowing you to zero in a particular sector like hospitality or mix-and-match to hedge against risk. Thus, REITs are a popular choice for diversifying your portfolio.

S-REITs, or Singapore REITs, refer to REITs that are listed on the Singapore Exchange (SGX). These range from mostly holding Singapore properties to funds that hold an international portfolio.

All told, S-REITs have enjoyed good popularity among investors. Today, they makeup over 12% of the SGX’s total market capitalisation and, over the last 10 years, have seen a compound annual growth rate of around 6%.

Encouragingly, DBS has put in a favourable forecast for S-REITs this year, with retail REITs slated to do especially well. The bank also expects good results from offices, hotels and industrial REITs in 2024.

This was following a less-than-stellar 2023, which saw S-REITs, pounded by rising interest rates, trading flat for the first half of the year. 

However, rising optimising on interest rate cuts helped lift global REITs towards the end of 2024, which saw S-REITs closing the year in the green with a total return of 6.6% – in contrast to the FTSE EPRA Nareit Asia ex Japan Index’s 0.8% total return, and the FTSE EPRA Nareit Developed Index’s 9.0% total returns. 

So, it’s safe to say that S-REITs have rebounded. And now that you’re all caught up let’s take a look at some promising S-REITs as candidates for your portfolio.

Disclaimer: The information presented in this article is meant for educational purposes only and does not constitute financial advice. Consult a qualified financial advisor to determine if investing in S-REITs is right for you. Past performance is not a guarantee of future results. 

Table of Contents


Four S-REITs to watch in 2024

S-REIT

Total returns in 2023*

Category

Keppel DC REIT

15.6%

Industrial (Data Centres)

Frasers Hospitality Trust

16.9%

Hospitality

Mapletree Industrial Trust 

19.9%

Industrial (Mixed)

Capitaland Ascendas REIT

16.9%

Industrial (Mixed)

Source: SGX

Keppel DC REIT

Keppel DC REIT had a rough 2023 with interest rate headwinds and an unexpected surge in property expenses due to uncollected rentals from one of its tenants. As a result, DPU fell by 8.1% year-on-year.

However, with an easing of interest rate policy and the putting forth of a roadmap for recovery of some RMB 48.3 million owed by tenant Bluesea, the REIT is looking forward to better days ahead. 

These temporary issues should not detract from Keppel DC REIT’s fundamentals, which remain strong. It reported a portfolio occupancy of 98.3% as of 31 Dec 2023 and secured positive rental reversions for new, renewal and expansion leases in Singapore, Australia, Ireland, and the Netherlands.

Being a specialist in data centre management, the fund is also well-poised to benefit from increased strong demand for cloud computing, digitalisation, big data, and artificial intelligence.

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Frasers Hospitality Trust

After a property divestment at a 12% premium, Frasers Hospitality Trust has reduced its gearing, resulting in a strong financial footing for 2024. This is likely to allow the fund to proceed with portfolio rejuvenation plans, which could comprise targeted rebrandings as hotel contracts expire. 

As another advantage, Frasers Hospitality Trust is well-positioned to benefit from the continued recovery in business events and conventions. A potential driver could be the strong MICE (meetings, incentives, conferences and exhibitions) calendar in Singapore and around the region – territories where Frasers Hospitality Trust owns and operates several known franchises.

Mapletree Industrial Trust

A long-time favourite among Singaporean investors, Mapletree Industrial Trust’s portfolio consists mainly of industrial assets located in Singapore. It has a well-diversified set of holdings, ranging from business parks, hi-tech industrial buildings and ramp-up buildings to flatted factories and data centres.

Recently, the REIT has focused on efforts to upgrade its portfolio via strategic upgrades of its flatted factory assets and increasing its acquisitions of data centres. The move is expected to enhance resilience and tenant diversity.

Additionally, the pivot to data centres – which now make up 50% of its portfolio –  along with its well-located, high-specification properties capable of serving tenants in sectors like IT, media, tech, bio-medical and varied industrial sectors, means that the fund now stands as one of Singapore’s largest new economy REITs, with total asset-under-management close to S$9 billion.

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Capitaland Ascendas REIT

Singapore’s first and largest business and industrial REIT, Capitaland Ascendas REIT, has since grown to become a leading global REIT anchored in Singapore.

Specialising in tech and logistics properties in developed markets, the fund owns properties across Business Space and Life Sciences, Logistics, and Industrial and Data Centres in Singapore, Australia, the United States and the United Kingdom/Europe.

In 2023, a key performance highlight was the positive rental reversion of 13.4% (i.e., the value of rents signed increased by 13.4% overall), with the trend expected to continue in FY2024. In particular, US properties are expected to hit double-digit reversions.

The fund saw a slight increase in gearing from 37.2% to 37.9%, due to a 1.8% valuation decline at the year end. However, Capitaland Ascendas REIT has 79.1% of its debt hedged, with an average hedge term of 3.5 years, putting the fund in a healthy financial state overall.

Analysts expect the REIT to have headroom for further acquisitions and to generate value via targeted redevelopments.

One such potential opportunity is the proposed redevelopment of its data centre in the United Kingdom, increasing its capacity three-fold to 60 megawatts – this could allow the property to attract hyperscalers.


Helpful metrics in evaluating REITs

Dividend-per-unit DPU

What makes REITs attractive is their regular dividend payouts, which income-seeking investors can use to build a stream of passive income. Those unfamiliar might be tempted to go for the REIT that provides the highest dividend yield but may not always be the wisest move. 

To see why, let’s first understand how dividend yield is derived – by taking the total dividends for the year and dividing it by the unit price, then multiplying by a hundred. 

Because of this formula, it means that the dividend yield can be raised if the unit price goes down (this is not desirable, as it poses a capital loss). 

Another way to derive a high dividend yield is to increase the amount paid out to investors. Given that REITs are already required to pay out 90% of their income as dividends, any increase in yield over this might result in insufficient funds retained for future investment and development. Again, this is not desirable. 

Instead, investors should pay attention to Distribution-per-Unit (DPU) – the actual amount paid out per share. What you want is a track record of increasing DPU year after year; this is a hallmark of a healthy, well-performing REIT.  

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Net Property Income (NPI)

Net Property Income is a measure of profitability. It is derived from the gross revenue (sum of all rentals collected from tenants), less expenses such as management fees, maintenance fees, property taxes, and other operating expenses.

As with DPU, you’ll want to look for a pattern of NPI growth – or at least this figure should be holding steady and not declining. A declining NPI means that the REIT isn’t properly generating profit, which is a sign of fundamental problems.

As a bonus, an increasing NPI also means higher DPU, so both figures often move in tandem.

Gearing

Gearing, also known as aggregate leverage, measures how much debt the REIT has taken on.

Too much debt means high debt repayments, which can reduce profitability. Too low debt may not be desirable too, as it may mean the REIT is missing out on potential opportunities by not borrowing to acquire other properties.

In Singapore, REITs are allowed a maximum gearing of 50%. Most S-REITs strive to maintain healthy levels of gearing at around the 30% mark, but this may change under special circumstances.

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Net asset value (NAV)

The Net Asset Value is the net market value of the REIT, less liabilities. It is then divided by the total number of units to derive a per-share NAV.

Per-share NAV is useful when compared with the REIT’s unit price. If the share price is higher than the per-share NAV, it indicates the REIT is currently overvalued.

If the share price is on par, or lower than, the per-share NAV, it indicates the REIT is trading at or under fair value, which might indicate a buying opportunity.

Of course, this doesn’t mean that you should ignore an S-REIT just because its per-share NAV is lower than the unit price. There could be many other attractive factors that render high valuation worthy in the eyes of investors.

Total returns

REITs are akin to dividend stocks in that they provide value to investors in two ways – unit price appreciation and dividend yield.

When evaluating the performance of a REIT, it is important to take both price and yield into account. The metric that encompasses both is known as the “total returns” and is a good metric to refer to if you want a quick, holistic overview of investment performance – compared to just the DPU or the NAV.

An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.

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