The Best Singapore REIT for 2022

When faced with a buffet, it can be tough to decide which food will bring you the most satisfaction.

The same logic applies to the selection of a great REIT.

Singapore, being a reputable REITs hub, offers a wide array of REITs for the income-focused investor to select from.

While having a veritable buffet of REIT offers choice, it can also be tough to choose REITs with strong attributes that you can own for the future.

After observing the REIT market for nearly two decades, we have come up with a compilation of attractive characteristics that a REIT should possess.

Armed with this knowledge, let’s seek out the best Singapore REIT to own for 2022 and beyond.

Aspects to watch for

The first important attribute is the nature of the properties that the REIT owns.

The pandemic has shown that industrial REITs were the most resilient during the last 18 months, while hospitality REITs bore the brunt of the economic damage.

Geographic diversity is also a key factor to look at as it helps to spread out the country risk for the REIT.

Next, a strong sponsor provides peace of mind to unitholders that the REIT can receive financial support should it fall on tough times.

A reputable sponsor also comes with a ready pipeline of properties that can be injected into the REIT, providing it with an easy avenue for portfolio growth.

The distribution yield is the next aspect to watch for, but this can be tricky.

Yields that are too high may turn a REIT into a value trap, while low distribution yields imply that a REIT may be trading at expensive valuations.

A comfortable level would be the 3% to 5% range backed by other strong attributes highlighted above.

Finally, a financial metric to watch will be the REIT’s gearing level.

High aggregate leverage means the REIT has less room to borrow to fund acquisitions and may need to rely on equity fundraising to purchase properties to grow its portfolio.

One attribute alone is insufficient

REITs possessing the attributes above will make interesting investment candidates, but we should be discerning as investors.

For instance, SPH REIT (SGX: SK6U) has the backing of media giant Singapore Press Holdings (SGX: T39), but its distribution per unit (DPU) has not grown much over the years.

DPU for the fiscal year 2014 (FY2014) was S$0.0543 and has increased to just S$0.056 by FY2019, up 3.1% over five years.

Contrast this with Parkway Life REIT (SGX: C2PU) which has grown its DPU from S$0.0683 in FY2008 to S$0.1379 in FY2020 for a 102% growth over 12 years.

Meanwhile, Sabana REIT (SGX: M1GU) has a low gearing of 34.8% as of 30 September 2021 but lacks a strong sponsor.

ESR-REIT (SGX: J91U), on the other hand, may be in the right property subclass as it owns a portfolio of industrial properties, but its gearing level is high at 41.3%.

The key here is to find as many of the positive attributes as possible while understanding the downsides.

A mix of positive factors

Sifting through the collection of REITs, you need to find those that have a good mix of positive attributes.

To be sure, there is no such thing as a “perfect” REIT.

There will surely be negatives that offset the positives, but as investors, you need to locate one with a healthy mix of attributes that maximises its chances of delivering growing DPU over the years.

Get Smart: The best REIT choice

Over at The Smart Dividend Portfolio, we own a total of nine REITs.

These REITs were carefully selected from the universe of available REITs and all possess the attributes we mentioned above.

We believe that DPU consistency, a strong sponsor and a track record of accretive acquisitions are great attributes for a REIT to have, and have chosen this list accordingly.

These REITs have performed admirably during the pandemic and demonstrated their resilience, with many reporting rising year on year DPU amid a rebound in consumer and economic sentiment.

What’s more, we remain confident that this crop of REITs can continue to deliver outstanding performance in 2022 and beyond.

There is healthy potential for portfolio growth and along with it, a rise in DPU.

Click HERE if you want to find out more about The Smart Dividend Portfolio and how we construct it.

You can find out more about these nine REITs and why they are so attractive.

One of them could possess all the characteristics needed for you to classify it as the “best” REIT for 2022.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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