Llama Stocks Portfolio - Finding the One Best REIT to add to my Portfolio
REITs are called Real Estate Investment Trusts. It is a little similar to Unit Trusts, however, the underlying assets are properties. In fact, properties close to our hearts.
For instance, great malls like Causeway Point & CentrePoint belongs to Frasers Centrepoint Trust. Mount Elizabeth Hospital is using the building which belongs to ParkwayLife REIT.
Here is a simple diagram of how REITs work from Seedly:
As of day of writing, 37 REITs could be found on SGX website. However, I would only want to add 1 REIT to my Llama Stocks Portfolio right now.
Let's pick the best out of the 37!
First, I have used REIT Screener to identify those with Lowest Gearing Ratio.
I would not consider those REITs with a huge presence overseas, and those embroiled in adverse publicity.
Technically, all those REITs that has properties largely based in China, and those related to Lippo Malls Reit will not be considered. Its Sponsor, Lippo Karawaci is in the middle of a Bribery Probe, and Fitch Ratings has cut its BB- rating to CCC+.
So here are the top few identified by REIT Screener:
1. SPH REIT
2. Frasers Commercial Trust
3. Frasers Centrepoint Trust
4. Kappel DC REIT
Gearing Ratio can only be at most 30% to meet my standards.
Let's also see, which has Lowest Price-to-Book ratio:
1. Frasers Commercial Trust
2. AIMS AMP Capital Industrial REIT
3. Frasers Centrepoint Trust
4. SPH REIT
Price to Book Ratio has to be at most 1.1.
I have also used SGX Stock Screener to identify those close to a 52-week Low:
1. SoilBuild Biz REIT
2. Cache Logistics Trust
3. SPH REIT
4. Frasers Centrepoint
From above, let's take a look at SPH REIT vs Frasers Centrepoint.
I would like to see Dividend growth (or at least no falling dividends) and positive business outlook.
SPH REIT dividend history
Frasers Centrepoint Trust (FCT) dividend history
Frasers Centrepoint Trust's growth definitely seems more promising. From below analysis, we are seeing a better growth in Dividend-per-unit (DPU) for FCT compared to SPH REIT. So, 1 point to Frasers Centrepoint.
|SPH DPU growth|
|Frasers Centrepoint Trust DPU|
SPH REIT is at its 52 week High, and its 52 week range is kept within a small range of $0.958 to $1.04.
Frasers Centrepoint Trust is a little below its 52-week high. Priced now at $2.28, it is close to the top of 52-week range - $2.14 to $2.31.
1 more point to Frasers Centrepoint.
SPH REIT owns Paragon Mall, Clementi Mall and Rail Mall. It is seeking an Australian Acquisition too.
Figtree Grove Shopping Centre was successfully acquired on 21 Dec 2018 by SPH REIT.
SPH REIT established an incremental facility agreement and took three-year loan of SDG 50 million (AUD 50.8 million) and a four-year loan of SDG 50 million (AUD 50.8 million) to partially finance the acquisition.
With this, Gearing Ratio of SPH REIT will be raised to be about 29-30%. Frasers Centrepoint Trust's Gearing ratio stands at 28.8% per REIT Screener.
Swordfish Australian Mid TC Pty Ltd will also provide a gross rental guarantee capped at AUD 0.8 million for the first year in case of any shortfall in tenancy agreed upon.
Frasers Centrepoint Trust has a very simple business structure. It owns 6 malls in Singapore as shown below in the snapshots.
Growth strategies include Northpoint City (North Wing) and 33% of Waterway Point. This depends on whether Frasers Property Limited will pump the respective assets into the REIT.
It also grows via Asset enhancement as seen from its Northpoint City Mall revamp, and building of underground link for Causeway Point.
Frasers Centrepoint Trust seems to be a good addition to Llama Stocks Portfolio. SPH REIT will be having an upward Rental Reversion for its Paragon Mall. However, the risk of being involved in Australia property is something unfamiliar to myself.
Australia currency may continue to weaken against SGD, and this may affect the Net Property Income Yield in terms of SGD.
I would prefer the simple local business of FCT, and the properties owned are the core Heartland Malls that every Singaporeans go to.
FCT also has a real-estate oriented sponsor as compared to SPH REIT. FCT can look forward to potential asset injections from Frasers Property Ltd. One can be more confident of a better DPU growth with FCT compared to SPH.
I am looking forward to price in FCT for Llama Stocks Portfolio.
Thanks to Mr Vince for sharing his REITs knowledge :) Check out his blog here at REIT-tirement.blogspot.com!