Higher interest rates dampen economic sentiments. With a 75 basis points (bps) being priced into the next Federal Open Market Committee (FOMC) meeting to battle inflation; the US federal reserve (Fed) rate will increase from a current 2.5% to 3.25%. There are also further rate hikes of another 75bps being priced in the November and December meetings. To make things worse, inflation is also at elevated levels, affecting the cost base of many companies including REITs.
This is a triple whammy for REITs who sees weak rental reversions when economic sentiments are weak. As leveraged vehicles, higher interest rates also affect the bottom line. Inflation arising from higher costs such as manpower and utilities also have a direct impact on REITs.
In these times, there are some strong Singapore REITs who have seen resilient performances both from a share price and also a business perspective.
A blue chip stock is a recognized, well-established, and financially sound company. Blue chips generally carry high-quality, widely accepted products and services. In this case, the blue chip REITs tend to have premium or even best in class assets. Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
We have identified 6 blue chip REITs here.
These 6 blue chip REITs are also currently part of the Straits Times Index. Here we take a unique approach to identifying which is the best REIT to buy by looking at the share price performance, track record of distribution growth, asset quality, scale and diversification as a form of resilience and a strong sponsor backing.
6 best blue chip REITs to buy
| Blue Chip S REIT | Ticker (SGX) | STI Weightage* (%) | YTD Total Return (%) | Annualised 3 Year total return (%) | Dividend Yield (%) | Gearing Ratio (%) | Price to book ratio (times) |
| Ascendas REIT (AREIT) | A17U | 3.33 | 3.4 | 4.6 | 5.2 | 36.7 | 1.2 |
| Capitaland Integrated Commercial Trust (CICT) | C38U | 3.76 | 7.1 | -2.3 | 4.8 | 40.6 | 1.0 |
| Frasers Logistics & Commercial Trust (FLCT) | BUOU | 1.29 | -2.6 | 12.7 | 5.4 | 29.2 | 1.1 |
| Mapletree Industrial Trust (MIT) | ME8U | 1.66 | 2.8 | 11.0 | 5.1 | 38.4 | 1.4 |
| Mapletree Logistics Trust (MLT) | M44U | 1.84 | -4.5 | 8.7 | 5.1 | 37.2 | 1.2 |
| Mapletree PanAsia Commercial Trust (MPACT) | N2IU | 1.38 | -2.4 | 1.8 | 5.0 | 33.8 | 1.1 |
*Weight as at 30 June 2022. Rebalancing is expected on 30 September 2022 due to addition of Emperador, removal of Comfort DelGro and merger of MCT & MNACT into MPACT.
Past performance is an indicator of future performance
Looking at the total return indices, we can see that the 3 year total return for the 2 REIT indices has ticked up slightly. 4 of the 6 blue chip REITs in the table have beat the indices with a 3 year CAGR of between 4.6% to 12.7%. The 2 exceptions are CICT and MPACT. CICT & MPACT saw prices fall due to the merger which changed the valuation composition of both REITs.
Distribution growth streak underpinning robust dividend yields
FLCT, MLT AND MIT has seen many consecutive years of increases in distribution per unit and the streak was not broken by the pandemic as these 3 S REITs have exposure to logistics and data centre assets which meant that they benefited from the pandemic induced demand.
For AREIT, CICT and MPACT, due to the exposure to commercial properties, the streak was broken during the pandemic, but all 3 REITs are well on their way to get back on track.
The latest SG 10-year government bond yields as at 8 Sept 22 is 3.09%. Despite their blue chip status, the REITs are providing a 2% premium to the SG 10-year government bonds for investors based on existing dividend yields.
*CICT, FLCT, MPACT are currently classified under the Diversified sub-segment
Comparing to the average dividend yields, we can see that the REITs that are under the industrial sub-segment are averaging yields that are lower than the segment while the REITs that are under the Diversified sub-segment are in line with the average. This could be because of certain high yielding smaller REITs in the industrial sub segment.
Scale – merging to become bigger, better, and diversified
3 of the 6 blue chip REITs were formed from mergers. The main rationale for the mergers were to diversify and to obtain scale.
CICT was formed in 2020 from the merger of Capitaland Commercial Trust (CCT) and Capitaland Mall Trust (CMT).
FLCT was formed in 2020 as well from the merger of Frasers Logistics & industrial Trust (FLT) and Frasers Commercial Trust (FCOT).
MPACT was recently formed in 2022 from the merger of Mapletree Commercial Trust (MCT) and Mapletree North Asia Commercial Trust (MNACT).
The smallest REIT on the list is FLCT with a S$5.1 billion market cap. Still a sizeable REIT by any definition. The other 5 REITs have market caps between S$7 billion and S$14 billion. The size provides for flexibility to acquire, divest or carry out AEIs while maintaining strong distribution levels.
High quality diversified assets
All 6 REITs have high quality assets. The REITs are diversified across various sub segments with 5 of the 6 REITs having assets across various subsegments. The 3 REITs mentioned above have assets across at least two sub segments due to the mergers. Only MLT is not diversified as it holds only logistics assets.
All 6 REITs are also geographically diversified in at least 3 countries or regions. The REITs have exposure in strong and stable places such as Singapore, US, UK, Germany, Australia, Hong Kong, China and Japan.
Strong Sponsors
5 out of 6 REITs are owned by Temasek. The sponsors of the REITs, namely Capitaland and Mapletree are also owned by Temasek. As Temasek is a sovereign wealth fund with the highest credit rating of Aaa/AAA, it shows that these REITs have strong backing.
The only REIT that is not owned by Temasek is FLCT. FLCT is owned by Thai tycoon, Charoen Sirivadhanabhakdi, who owns the TCC Group, Thai Beverage and the F&N group. There are currently 6 entities listed on SGX under this umbrella. This includes FLCT, Thai Beverage, Frasers Property, Frasers Centrepoint Trust, Frasers Hospitality Trust and Fraser & Neave.
Closing statement
| Stock | Performance Track record | Distribution growth | Scale | Diversified assets | Strong sponsors | Number of ticks |
| Ascendas REIT (AREIT) | 🗸 | 🗸 | 🗸 🗸 | 🗸 🗸 | 6 | |
| Capitaland Integrated Commercial Trust (CICT) | 🗸 | 🗸 🗸 | 🗸 🗸 | 5 | ||
| Frasers Logistics & Commercial Trust (FLCT) | 🗸 | 🗸 | 🗸 | 🗸 🗸 | 🗸 | 6 |
| Mapletree Industrial Trust (MIT) | 🗸 | 🗸 | 🗸 | 🗸 🗸 | 🗸 🗸 | 7 |
| Mapletree Logistics Trust (MLT) | 🗸 | 🗸 | 🗸 | 🗸 | 🗸 🗸 | 6 |
| Mapletree PanAsia Commercial Trust (MPACT) | 🗸 | 🗸 🗸 | 🗸 🗸 | 5 |
Based on the table above, we favour MIT as the highest number of ticks while AREIT, FLCT and MLT are not far behind. Fundamentally, this could be attributable to the sub-segments in which these 4 REITs operate in. Logistics and data centre assets have been outperforming due to the pandemic induced requirements.
This does not mean we are discounting CICT & MPACT as these 2 REITs could very well outperform in the near future due to potential outperformance in the segments that they operate in. Commercial and retail assets are on the recovery path due to the reopening theme globally and rental rates ticking up could lead the recovery.
If you like Singapore dividend stocks, I shared 5 that are worth watching here.