Ask 10 different individuals about the things they look out for when it comes to choosing which companies to invest in, and chances are, you’re going to get 10 different replies – the reason is because what is acceptable to one may not be so to another, and vice versa.
There are no right or wrong answers here – the most important thing is that, one must be comfortable with his/her own set of selection criteria.
Speaking of which, one of the selection criteria for REITs is whether it invests in a different asset types (earlier this month, I shared about 7 REITs with a diversified portfolio, and you can check it out here), or in just one particular type.
My post today focuses on the latter – where you’ll find 7 REITs that invests in specialised asset classes:
1. BHG Retail REIT (SGX:BMGU)
Listed on the Singapore Exchange since December 2015, BHG Retail REIT, as the name suggests, is a pure-play retail REIT. Not only that, it is also focused on one geographical location – China.
As at 31 December 2022, the REIT’s portfolio has a total of 6 retail properties all located in high population density areas in the various parts of China, where they are frequented by growing middle class professionals and families, as follows:
- 60.0% interest in Beijing Wanliu (北京华联万柳购物中心) in Beijing
- Chengdu Konggang (北京华联成都空港购物中心) in Chengdu, Sichuan Province
- Hefei Mengchenglu (北京华联合肥蒙城路购物中心) in Hefei, Anhui Province
- Hefei Changjiangxilu (北京华联合肥长江西路购物中心) in Hefei, Anhui Province
- Xining Huayuan (北京华联西宁花园店) in Xining, Qinghai Province
- Dalian Jinsanjiao (北京华联大连金三角店) in Dalian, Liaoning Province
2 of the properties (in Xining Huayuan and Dalian Jinsanjiao) are master-leased (and are 100.0% occupied), with the other 4 properties being multi-tenanted (where they have occupancy rates of above 90.0%.)
2. CapitaLand Ascott Trust (SGX:HMN)
As the world moved on from the Covid-19 pandemic, with tourism and MICE (Meetings, Incentives, Conferences and Exhibitions) events resuming, hospitality REITs are one of the key beneficiaries – and CapitaLand Ascott Trust is one of them.
The hospitality REIT is the largest lodging trust in Asia-Pacific with an asset value of S$8 billion as at 31 December 2022. Its portfolio comprises 105 properties (where they are mostly operated under the Ascott, Somerset, Quest and Citadines brands) with more than 18,000 units in 47 cities (most of them key gateway cities including Barcelona [Spain], Berlin and Munich [Germany], Brussels [Belgium], Hanoi and Ho Chi Minh City [Vietnam], Jakarta [Indonesia], Kuala Lumpur [Malaysia], London [United Kingdom], Manilla [Philippines], Melbourne, Perth, and Sydney [Australia], New York [United States], Paris [France], Seoul [South Korea], Singapore, and Tokyo [Japan]) across 15 countries in Asia-Pacific, Europe, and the United States.
57 of the properties are serviced residences, 18 are hotels/business hotels, 21 are rental housing, and 9 are student accommodation.
3. Elite Commercial REIT (SGX:MXNU)
Listed on the Singapore Exchange since February 2020, Elite Commercial REIT is the first and only UK-focused REIT listed in Singapore.
Its portfolio comprises 155 predominantly freehold office assets located across the country with an aggregate value of £466.2m. Over 99.0% of its gross rental income comes from the UK government, where they are primarily occupied by the Department for Work and Pensions – UK’s largest public service department that is responsible for welfare, pensions, and child maintenance.
Portfolio occupancy as at 31 December 2022 is at a high of 97.9%, with a huge majority (89.0%) of the leases due to renewal only in the year 2028 – hence in terms of income contribution over the next few years, it is a stable one.
Finally, do take note that even though the REIT is Singapore-listed, but it trades in British Pounds – so your profits (when converting back to the Singapore Dollar) may fluctuate depending on Forex movements.
4. First REIT (SGX:AW9U)
First REIT is Singapore’s first healthcare REIT that invests in a diversified portfolio of income-producing real estate assets in Asia primarily used for healthcare and/or healthcare-related purposes – where its portfolio comprises of 32 properties with 11 hospitals, 2 integrated hospitals and malls, 1 integrated hospital and hotel and country club located in Indonesia, 3 nursing homes in Singapore (in Pacific Healthcare Nursing Home @ Bukit Merah, Pacific Healthcare Nursing Home II @ Bukit Panjang, and The Lentor Residence), and 14 nursing homes in Japan (acquired in FY2022.)
The REIT has a long weighted average lease expiry (WALE) of 12.5 years, with 73.0% of the leases expiring in more than 10 years. Only 7 of its properties have leases expiring within the next 5 years (which is pretty minimal.)
5. Keppel REIT (SGX:K71U)
Keppel REIT is one of Asia’s leading REITs with a portfolio of prime office properties located in key business districts pan-Asia.
As at 31 December 2022, the REIT has a total of 12 assets valued at $9.0 billion in 4 countries – Singapore (4 assets), Australia (6 assets), South Korea (1 asset), and Japan (1 asset), as follows:
Singapore: Ocean Financial Centre (79.9% interest), Marina Bay Financial Centre (33.3% interest), One Raffles Quay (33.3% interest), Keppel Bay Tower (100.0% interest)
Australia: David Malcolm Justice Centre, Perth (50.0% interest), Victoria Police Centre, Melbourne (50.0% interest), 8 Exhibition Street, Melbourne (50.0% interest), Blue & William, Sydney (100.0% interest – currently under development), Pinnacle Office Park, Sydney (100.0% interest)
South Korea: T Tower, Seoul (99.4% interest)
Japan: KR Ginza II, Tokyo (98.5% interest)
In terms of its occupancy rate, all of the REIT’s properties are at least 90.0% occupied, apart from 3 properties in Australia (8 Chifley Square, which is 82.0% occupied, Pinnacle Office Park, which is 89.5% occupied, and Blue & William, which is currently under development), and also its property in Japan (KR Ginza II, which is just 36.3% occupied.)
6. Keppel DC REIT (SGX:AJBU)
Listed on the Singapore Exchange since December 2014 as the first pure-play data centre REIT in Asia, Keppel DC REIT’s portfolio, as the name of the REIT implies, invests in properties used for data centre purposes – where its assets comprise an optimal mix of colocation, fully-fitted, and shell and core assets. Additionally, the REIT is also a constituent of Singapore’s benchmark Straits Times Index (where it has been included since September 2019.)
As at 31 December 2022, the REIT’s portfolio comprises of 23 data centres spread across 9 countries – 6 in Singapore, 2 in Australia, 1 in Malaysia, 3 in China, 3 in United Kingdom, 2 in Ireland, 3 in the Netherlands, 1 in Italy, and 2 in Germany – with a total assets under management of S$3.7 billion.
In terms of occupancy, it is at a high of 98.5%, with a long portfolio WALE of 8.4 years – where most of the leases will only be expiring in 2028 or later.
7. Prime US REIT (SGX:OXMU)
Listed since July 2019, Prime US REIT invests in income-producing office assets in the United States.
As at 31 December 2022, its portfolio comprises 14 Class A freehold office properties strategically located in 13 key US office markets, valued at US$1.54 billion.
In terms of portfolio occupancy, it remains stable at 89.1% – with all but a few of its properties (Tower I at Emeryville [76.1% occupied], Village Center Station I [68.7% occupied], and Reston Square [46.1% occupied]) having an occupancy rate of above 80.0%.
Last but not least, the REIT trades in US dollar despite it being listed in Singapore – as such, when you invest in the REIT, do take note that the eventual capital appreciation (after currency conversion back to Singapore Dollar) may vary due to Forex movements.
Supplement: Since we are on the topic of US office REITs, some may want to know of my view about the US office assets – particularly, whether the situation surrounding the US office REITs at the moment spells the beginning of the end of all these office assets.
Working from Home became a default since the Covid-19 pandemic broke out in 2020. Back then, people were of the view that hybrid working was going to become a norm when the pandemic gradually recedes, and as such, they moved out of the more expensive homes (located in the same city their offices were located) to cities that are further away (and in so doing, saving on rent.)
People became so used to working from home (after doing so for close to 2 years) and naturally, there will be resistance when they are being asked to return to offices again. This, along with companies cutting headcount and office spaces to trim costs, led to an increase in vacancies in some of the office properties.
With the US tipped to go into a recession this year, companies become more nimble and focus more on profitability than growth. On top of that, they have also become more prudent in their spending. That said, I’m of the opinion that demand for office spaces in the US are likely to remain weak for now.
However, just like in the past, a recession does not last forever – when the economy gradually recovers, and businesses once again becoming more optimistic of the future, they will focus on growth once again, and that’s when they will look to increase their staff headcount, and expand their office spaces to cater to that. When that happens, REITs with Grade A offices located in key locations will be among the very first first to recover.
So, there you have it, my list of 7 REITs that invests in specialised assets.
Do note that this post is not any recommendation to buy any of the REITs listed above – You should conduct further research on the individual REITs to get a better understanding of its financial performance, debt profile, and distribution payout over the years before you decide whether or not to invest in them.
Apart from studying the individual REITs’ annual reports, you can also attend the upcoming REITs Symposium (which will be held on Saturday, 20 May, from 9am – 6pm at Suntec Convention Summit 1 & 2), where all the 7 REITs I have shared above will have booths set up, and representatives present, for you to learn more about, and have a better understanding of them.
For readers of The Singaporean Investor, you can get a 50% discount off the original ticket price by applying the coupon code RS23JY – however, they are limited quantities available, so be sure you act fast to sign up here before they are all snapped up.
Disclaimer: At the time of writing, I am a unitholder of Keppel DC REIT.
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