Unlock Your Future Income: 3 Singapore Real Estate Investment Companies to Consider Now

Once a favorite asset class for investors, real estate investment trusts (REITs) have fallen out of favor due to central banks’ aggressive interest rate hikes from 2022 to 2023.

These increases have increased REITs’ borrowing costs, putting additional pressure on them, alongside higher operating expenses caused by inflation.

Despite these challenges, Frasers Centrepoint Trust (SGX: J69U), Mapletree Pan Asia Commercial Trust (SGX: N2IU), and FPI ParkwayLife (SGX:C2PU) have all shown commendable performances.

Amid this negative sentiment, these well-managed REITs could represent an attractive opportunity for investors seeking long-term income.

Frasers Centrepoint Trust (FCT): A resilient retail real estate investment trust in Singapore

FCT is one of the leading owners of suburban shopping malls in Singapore.

These shopping centers are ideally located near homes and public transportation, resulting in high demand for their retail spaces.

Source: FCT Annual Reports

As the data reveals, real estate spending increased by 10% between 2021 and 2023, and financing costs climbed by 76% during this period.

However, this increase was mitigated by the robustness of its activity, which resulted in a minimal change in its distribution per unit (DPU).

In its latest H1 2024 results report, FCT reported a high occupancy rate of 99.9% and an average positive rental reversion of 7.5%. Meanwhile, customer traffic and tenant sales also increased year-on-year (YOY) for the quarter.

Financial costs are not expected to skyrocket further, and demand for retail space is strong, allowing FCT to maintain its DPU.

Mapletree Pan Asia Commercial Trust (MPACT): Meeting Challenges and Emerging Stronger

MPACT was formed from the merger in 2022 of Mapletree Commercial Trust and Mapletree North Asia Commercial Trust.

The merger of these two REITs coincided with a period of aggressive interest rate increases.

As a result, the newly formed REIT’s overall debt ratio increased from 33.8% as of June 30, 2022 to over 40% as of September 30, 2022.

Coupled with the higher cost of debt, financial costs for the financial year 2023/24 (FY 2023/24) have increased by 39% year-on-year.

Furthermore, the strengthening of the Singapore dollar against foreign currencies during this period contributed to a 7.3% year-on-year decline in DPU.

Despite these headwinds, there are positive signs that point to a brighter future for MPACT.

High occupancy and rental return: As at 31 March 2024, the portfolio has a healthy occupancy rate of 96.1%. Supported by strong demand for Singapore properties, the average rental reversion rate for FY2023/24 is positive at 2.9%.
Improved operation of the festive march: MPACT’s Festive Walk property has been facing negative rental reversion. However, the Hong Kong property is showing signs of rent stabilisation. Notably, its net real estate income (GNI) has increased by around 40% year-on-year.
Potentially reduced financing costs: The announced sale of Mapletree Anson (expected to be completed in July 2024) is expected to reduce its overall debt to 37.6% on a pro forma basis.

Having navigated a challenging operating environment over the past two years, MPACT appears well positioned to improve its performance going forward.

ParkwayLife REIT (PLife REIT): A Healthcare Industry Leader with a History of Growth

Last year marked the 16th consecutive year that PLife REIT has increased its core DPU since its listing.

Photo credit: PLife REIT 2023 Annual Report

This impressive feat was achieved thanks to a strong relationship with its sponsor IHH Healthcare Berhad (SGX:Q0F) and a solid management strategy.

For its Singapore portfolio, namely Mount Elizabeth Hospital Property, Gleneagles Hospital Property and Parkway East Hospital Property, PLife REIT has renewed its head lease with IHH in 2022.

This agreement guarantees a gradual increase in rent from 2022 to 2025, followed by the annual rent review adjustment formula which will apply for the remaining term of the lease until 2042.

With the Singapore portfolio contributing approximately 70% of its total NPI, the agreement provides a sustainable long-term rental income stream.

That said, PLife has not been immune to rising borrowing costs and exchange rate fluctuations.

Although the cost of debt is still low at 1.3%, it has more than doubled since 2021.

At the same time, the Japanese yen (JPY) has also depreciated significantly against the Singapore dollar over the past two years.

This will impact the rents collected from its Japanese properties.

PLife’s proactive capital management has helped mitigate the impact. The REIT does not require immediate debt refinancing through March 2025, with approximately 91% of its interest rate exposure hedged.

Additionally, JPY net income hedges are in place through Q1 2029. These hedges enabled PLife to increase its Q1 2024 DPU by 4.0%, despite the year-on-year decline in its gross revenue and NPI for the quarter.

Thanks to the favourable rental structure of its Singapore portfolio, its first-mover advantage in the Japanese elderly care market and its prudent capital management, PLife is able to support the increase in its DPU.

Be smart: eyes on the future

While bonds provide a safety net in the current economic climate, investors may want to consider adding well-managed REITs as a strategic long-term investment, as REITs have the potential to outperform bonds over time.

By investing in these reliable REITs now, you position yourself to benefit from a growing passive income stream through their increasing distribution per unit (DPU).

We just revealed the top 7 U.S. tech stocks poised for remarkable growth. In today’s fast-moving market, betting on these giants could mean more money in your pocket. With a focus on strong fundamentals and innovative prowess, these picks should earn a spot in your portfolio. Click here to get your FREE report now and start investing in the future, today.

Disclosure: Chan Kin Chuah holds shares in Frasers Centrepoint Trust, Mapletree Pan Asia Commercial Trust and ParkwayLife REIT.