The year 2020 was full of surprises. COVID-19 was one of them. It is depressing to describe the ordeal that many of us went through over the past year but the pandemic has fundamentally changed the way we live.
Most of us are still working from home by default which makes office assets look redundant. Tourists are a rare sight nowadays as most international flights are still grounded and hotels are struggling to fill their rooms. City malls are also scrambling to bring shopper traffic back as they used to depend on office workers and tourists for footfall in the past.
On the other hand, industrial properties like logistics and data centre assets have performed really well in the post-pandemic world. More people are shopping online and it has naturally led to increased demand for warehouse and logistics space. More businesses are also being digitising their operations boosting demand for data centres.
So if we look at the short-term performance of real estate investment trusts (REITs) in Singapore, we will get different sets of results. REITs with exposure to office, retail, and hospitality assets haven’t recovered to their pre-pandemic levels while industrial REITs have almost recovered, and some have already exceeded their pre-pandemic level.
There were several casualties last year. Eagle Hospitality Trust was suspended as its core master lessee defaulted on rent payments and the REIT has since filed for bankruptcy protection.
Likewise, Lippo-linked REITs like LMIR and First REIT lost three quarters of their value in the last one year as their rental incomes have fallen significantly. So it seems that many REITs have not done well since the pandemic. But if we look at the long-term performance of REITs then we might see a better picture.
I first wrote about the long-term performance of S-REITs five years ago and, this time around, we will revisit their performance by taking into account the latest share prices as at 15 February 2021 and dividends paid out to unitholders up to same period.
A REIT would need to have been listed for at least ten years to properly judge their overall underlying performance. I also made adjustments such as pre-consolidated units and distributions to get a more accurate picture.
There were 23 Singapore REITs that listed in 2011 or earlier but four of them will be excluded: Saizen and Fortune REIT have been delisted from the SGX, and Capitaland Commercial Trust and Frasers Commercial Trust have since merged with CapitaLand Mall Trust and Frasers Logistics Trust respectively.
Once again, we will assume that John (a fictional character) invests $1,000 in each of these REITs from the day the REIT listed. Since John is a hardcore dividend investor and wants to keep all his cash, he doesn’t want to come out with any money to subscribe to rights issuances (if any) and is prepared for any share dilution. Let’s also assume that John also forgets to sell his nil-paid rights from which he can obviously make a profit from.
For example, if John invested in Mapletree Logistics Trust (MLT) from its IPO, his initial investment of $1,000 would’ve grown to $2,870 (+187% in capital gains) as at 15 February 2021. On top of that, he would have collected total dividends of $1,500 (+150% in distributions). In total, John’ initial investment of $1,000 would have grown to $4,370 (+337% in total return), including the dividends received over the years.
If John invested $10,000, then his investment would’ve grown to $43,700. Likewise, $100,000 will turn into $437,000. Basically, the more money he invests, the more he is going to make. And the longer he holds, the more dividends he is going to receive. All in all, his annualised return from MLT alone is 9.65% from July 2005 to February 2021. Such a return is undoubtedly many times better than if deposited the same amount with a bank.
So after investing for more than 10 years, here are the top 10 best-performing REITs for John. (Note: We’ve excluded brokerage costs, currency exchange gains/losses, and taxes that might be applicable to foreign investors.)
10. Suntec REIT (Annualised return: +6.61%)
Since 2004, every $1,000 investment in Suntec REIT would’ve turned into $1,490. Including dividends, every $1,000 would cumulatively become $2,970.
9. Ascott Residence Trust (Annualized return: +7.72%)
Since 2006, every $1,000 investment in Ascott Residence Trust would’ve turned into $1,490. Including dividends, every $1,000 would cumulatively become $3,050.
8. Capitaland Integrated Commerical Trust (Annualised return: +7.83%)
Since 2002, every $1,000 investment in CMT would’ve turned into $2,230. Including dividends, every $1,000 would cumulatively become $4,190.
7. CDL Hospitality Trust (Annualized return: +7.88%)
Since 2006, every $1,000 investment in CDL Hospitality Trust would’ve turned into $1,460. Including dividends, every $1,000 would cumulatively become $3,120.
6. Frasers Centrepoint Trust (Annualized return: +9.32%)
Since 2006, every $1,000 investment in FCT would’ve turned into $2,450. Including dividends, every $1,000 would cumulatively become $3,800.
5. Mapletree Logistics Trust (Annualized return: +9.65%)
Since 2005, every $1,000 investment in MLT REIT would’ve turned into $2,870. Including dividends, every $1,000 would cumulatively become $4,370.
4. Ascendas REIT (Annualized return: +10.05%)
Since 2002, every $1,000 investment in Ascendas REIT would’ve turned into $3,510. Including dividends, every $1,000 would cumulatively become $6,170.
3. Parkway Life REIT (Annualized return: +11.13%)
Since 2007, every $1,000 investment in Parkway Life REIT would’ve turned into $3,230. Including dividends, every $1,000 would cumulatively become $4,380.
2. Mapletree Commercial Trust (Annualized return: +12.24%)
Since 2011, every $1,000 investment in Mapletree Comm would’ve turned into $2,330. Including dividends, every $1,000 would cumulatively become $3,170.
1. Mapletree Industrial Trust (Annualized return: +13.96%)
Since 2010, every $1,000 investment in MIT would’ve turned into $3,030. Including dividends, every $1,000 would cumulatively become $4,210.
In summary, here is John’s overall performance:
The most impressive REIT in John’s portfolio, in term of absolute return, is Ascendas REIT. Every $1,000 investment in Ascendas REIT would’ve turned that into $6,170! His net gain in Ascendas REIT alone is more than enough to cover his three losses in Sabana REIT, LMIR Trust, and MacarthurCook Industrial REIT (now known as AIMS APAC REIT).
Also, John is still very profitable without even having to come out with additional capital to subscribe to any rights. However, if he had subscribed to them (including excess rights), he would have made more money since rights are usually sold at a discount. At the end of the day, John continues to receive regular quarterly dividends from his S-REITs in good times and in bad.
As you can see, REITs remain a good choice for anyone who wants to build a steady and consistent stream of passive income. However, please note that you shouldn’t buy or avoid a REIT just based on the data above as past performance is not necessarily indicative of future results.
It’s highly important to have a proper investment process to help you identify and invest in the right REITs that will give you a continual stream of passive income and capital gains for many years to come.
I have been through your Dividend machines course and now have instructed my broker to invest in portfolio of Sreits.
I would like your opinion on the 9 reits below, are any of these one you would advise against?
( Singapore Dollar’s)
1 SGX: O5RU AIMS APAC REIT
2 SGX: J91U ESR-REIT
3 SGX: J69U Frasers Centrepoint Trust
4 SGX: BUOU Frasers Logistics & Commercial Trust
5 SGX: UD1U Ireit Global
6 SGX: CRPU Sasseur Real Estate Investment Trust
7 SGX: CWBU Cromwell European Real Estate Invemnt Tr
( US Dollar’s)
8 SGX: CMOU Keppel Pacific Oak US REIT
9 SGX: OXMU Prime US REIT
You might want to review ESR REIT as their track record have been rather poor. For the rest, you might want to give it a try and analyse what you’ve learned in the course itself? Feel free to share your research in the Dividend Machines Q&A forum, I can share my opinion after you’ve done with the analysis.
Now we are in 2022. So it is time to update this topic again. Thanks.