Best performing REITs year to date

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Which are the best performing Singapore REITs since the beginning of this year?

This post will answer that.

First up, a chart speaks a thousand words.

Best performing REITs
REIT performance Year to Date

REITs returned an average of 20% since the beginning of 2017. That’s the dotted red line.

Good for you and you did better than average if you were invested in CDL Hospitality Trust, Sabana REIT and Viva Industrial Trust.

Not so good if you were invested in EC World REIT, Starhill Global REIT and OUE Commercial REIT as your returns are the lowest. It’s still high single digit positive though.

You did average if you were invested in Keppel REIT, Capitaland Commercial Trust and Mapletree Industrial Trust.


Why did CDL Hospitality Trust perform so well?

For those who do not know CDL Hospitality Trust so well, it has properties in Singapore (Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Copthorne King’s Hotel, Novotel Singapore Clarke Quay and Studio M Hotel), Brisbane and Perth (Novotel Brisbane, Mercure Brisbane, Ibis Brisbane, Mercure Perth and Ibis Perth), Japan Tokyo (Hotel MyStays Asakusabashi and Hotel MyStays Kamata), New Zealand Auckland (Grand Millenium Auckland), United Kingdom (Hilton Cambridge City Centre in Cambridge and The Lowry Hotel in Manchester), Germany (Pullman Hotel Munich) and Maldives (g Angsana Velavaru and Jumeirah Dhevanafushi).

Their assets are valued at S$2.7 billion and they were listed in 2006.

M&C REIT Management Limited is the manager of the REIT.

Singapore comprises majority of their portfolio valuation at 63%. This makes CDL Hospitality Trust more of a Singapore play, though they are slowly expanding overseas, to places such as Germany with their Pullman Hotel Munich acquisition.

CDL Hospitality Trust portfolio breakdown
CDL Hospitality Trust portfolio breakdown

Despite the rights issue done to finance Pullman Hotel Munich together with its office and retail components for S$153.8 million, CDL Hospitality Trust has done well with a 34% return year to date.

This multi-bagger really hits the ball out of the park.

How did it do so well despite the June 2017 rights issue that saw share price fall from approx S$1.7 to S$1.55?

CDL Hospitality Trust Share Price
CDL Hospitality Trust Share Price

One reason could be the fine Net Property Income and Total Distribution showing for 2Q 2017, which rose 11.4% and 12.6% on a yearly basis.

Double digit growth is hard to come by and even though this was in 2Q 2017, investors could have been expecting a good showing, and turning bullish in anticipation of it.

CDL Hospitality Trust 2Q2017 results
CDL Hospitality Trust 2Q2017 results

Another reason could be the sudden interest by investors in Hospitality REITs. This could have been due to news that Singapore tourist numbers were on the rise.

Indeed, other Hospitality REITs such as OUE Hospitality Trust, Ascendas Hospitality Trust, Far East Hospitality Trust registered Year to Date returns of 26%, 26% and 22% respectively.

All the hospitality trusts have shown double digit performance since the beginning of the year.

At 5.7% dividend yield, CDL Hospitality Trust looks like a decent play. Analysts are expecting the yield to rise to 6% over the next year so that would be something to watch out for.

The dividend yield increase is most likely to come from revenue contribution by Pullman Hotel Munich.

Why is EC World REIT a laggard?

For one, it could have been the change of CEO from Mr Lai Hock Meng to Mr Alvin Cheng in Apr 2017, a mere 9 months after IPO.

It’s rare for a REIT to change its CEO so early on after the IPO (EC World IPO’d in Aug 2016)

EC World REIT appointment of Mr Alvin Cheng
EC World REIT appointment of Mr Alvin Cheng

BHG Retail REIT’s CFO was also changed early on after their IPO.

BHG REIT CFO's departure
BHG REIT CFO’s departure

Is there something going on with China REITs? Corporate governance? In fighting? Overseas sponsor exerting influence on the SGX listed REIT?

Nobody knows, but the departure in EC World REIT’s case could have contributed to the poor share price performance.

Despite first and second quarter 2017 figures beating forecast, China worries continue to persist on the macro level. That coupled with the relative lack of knowledge of EC World REIT, and Chinese REITs among the investor community could have led to subdued interest and performance.

EC World REIT Performance
EC World REIT Performance

At 7.7% dividend yield, EC World REIT definitely presents a very compelling income stream.

But.

Could this be a value trap?

I will be staying away from this counter (and generally China sponsored REITs) for some time given their financial engineering ways to get listed.

No doubt the logistics story is very compelling, but for the China market, it appears to be a winner take all situation.

Alibaba, YTO Express and STO Express are all very dominant and could EC World REIT upend them? That remains to be seen.

Personally, I would stick to REITs such as Mapletree Logistics and give EC World REIT some time to prove themselves.


Counter-intuitive performance with Sabana REIT

Sabana REIT really rocks the socks off investors.

If you didn’t hear about the fiasco at their AGM, you ought to read up on it. The management and Board of Directors were grilled on their poor performance, the trustee was trying to stay out of the (bad) limelight, and fiesty shareholders were up in arms.

I thought Sabana would have been a basket case with their share price dropping after the AGM but it wasn’t to be so.

The share price has held steady around the S$0.45 mark. It was about S$0.35 in Jan 2017, which explains it’s very strong 33% return since the beginning of the year.

One reason could be that analysts were putting out positive notes on a turnaround story. With the CEO being booted out, there might be a new face coming in to turn the REIT around.

At the same time, there were news floating around that there was going to be a consolidation of the smaller industrial REITs such as Sabana, ESR, AIMS, Cache etc.

Warburg Pincus and ESR were some names thrown around around the middle of 2017.

There has been no news till today, but the big boys may be in the background doing their financials and waiting for prices to fall before swooping in.

Notwithstanding the poor industrial macro environment in Singapore, would a dip in prices be a sign to enter the market in hopes of a takeover offer?

Hospitality REITs returned the highest on average

On average, hospitality REITs returned the highest return at 25% year to date.

REIT year to date sector returns
REIT year to date sector returns

This has come on the back of Singapore being the second most visited destination in the Asia-Pacific region by international visitors in 2016.

Visitor arrivals already exceeded 10 million in the first 7 months of the year, and is expected to hit more than 13 million in 2017.

Things look to be picking up for hospitality REITs in this regard, but the share price performance may not be sustainable going forward given full pricing.

How will you invest going forward?

Given the fairly decent performance for REITs since the beginning of 2017, how will you be positioning yourself to reap greater gains in future?

My investment philosophy is to target a consistent income stream, so anything above 6% dividend yield will be considered. One place to get started to rank REITs by dividend yields is the REIT data page.

Dividend yield in addition to other fundamental factors will be considered in totality.

Your investment philosophy, aims and objectives may be different, so take my approach and tweak it if you wish. You may be a multi-bagger or technical type of investor so adapt your style as you see fit.

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