The 6 Best Performing REITs In 2017
The Straits Times Index (SGX: ^STI) started 2017 at 2,881 points and ended the year 18.1% higher at 3,403. Yet, this healthy return does not imply that all types of stocks in the local market did well.
Fortunately for investors who like real estate investment trusts, 2017 was a year in which REITs had a respectable performance; in the 12 months ended 8 January 2018, REITs in Singapore’s market had produced a return of around 18%. But this being said, not every REIT had generated good returns in the past year.
This article is the third in a short series which will look at the best and worst performing REITs in 2017. In the first article, I studied three REITs with good returns in the year. In the second piece, I discussed two REITs that did relatively poorly. In here, I will focus on three more REITs that experienced good gains in 2017.
Mapletree Logistics Trust (SGX: M44U) is first on my list. It is a real estate investment trust that owns 124 logistics properties in Australia, and many other countries in Asia, including Singapore, China, and Hong Kong.
In the first half of its fiscal year ending 31 March 2018 (the reporting period is from 1 April 2017 to 30 September 2017), Mapletree Logistics Trust reported a 5.0% year-on-year increase in net property income to S$159.6 million. Its distribution per unit (DPU) also enjoyed growth of 1.7% to 3.774 cents.
In its earnings release, the REIT gave succinct but useful commentary on its outlook. Here it is:
“As a portfolio, the Manager continues to see sustained leasing activities across its diversified markets. Singapore’s market recovery is still slow due to pressure from the increase in supply of warehouse space. Hong Kong is expected to remain a strong market for MLT. In addition, Japan and Australia continue to provide stable income streams underpinned by 100% occupancy rates and long weighted average lease expiries.
The Manager is focused on maintaining high occupancy rates by actively managing leases due for renewal. For the remainder of FY17/18, a balance of 9.4% of MLT’s leases (by net lettable area) are due for renewal, of which 1.8% are leases for single-user assets and 7.6% are leases for multitenanted buildings.”
2017 saw Mapletree Logistics Trust deliver a total return (this includes distribution gains) of 38.8%. At the REIT’s current unit price of S$1.35, it has a price-to-book (PB) ratio of 1.14.
Next up, we have OUE Hospitality Trust (SGX: SK7), which generated a total return of 38.2% in 2017.
OUE Hospitality Trust is a stapled trust that consists of a REIT, and a business trust. Its real estate portfolio currently comprises the hotel, Mandarin Orchard Singapore, and an interconnected high-end retail mall, Mandarin Gallery. The portfolio also has the Crowne Plaza Changi Airport hotel. These three assets are all located in Singapore.
In the first nine months of 2017, OUE Hospitality Trust saw its net property income increase by 7.3% year-on-year to S$83.5 million. Its distribution per stapled security did even better; it climbed by 19.1% to 3.87 cents.
The trust had the following comments in its earnings release on its market environment:
“Singapore Tourism Board (“STB”) reported a 4.0%1 year-on-year increase in international visitor arrivals in the first eight months of 2017. For the full year 2017, STB has forecast 0% to 2% growth in international visitor arrivals at 16.4 million to 16.7 million.
Though the economic outlook has improved, there are still risks to achieving sustained recovery. Going into 2018, the return of large biennial events, such as the Singapore Airshow, are expected to increase demand for hotel accommodation but new supply continues to come on-stream in 4Q2017 and into 2018. As such, the market environment remains competitive.”
OUE Hospitality Trust’s stapled securities have a price of S$0.88 each right now, giving the trust a PB ratio of 1.16.
The third REIT I have is Parkway Life REIT (SGX: C2PU), one of Asia’s largest listed healthcare REITs by asset size. The REIT has ownership over three private hospital properties in Singapore, and holds stakes in 45 healthcare-related assets in Japan. It also has strata-titled units/lots in Gleneagles Intan Medical Centre in Malaysia.
Parkway Life REIT delivered net property income of S$76.9 million in the first nine months of 2017, which was flat compared to a year ago. But, its distribution per unit increased by 10.0% to 9.97 cents.
In its earnings release, Parkway Life REIT commented that the “long-term outlook of the industry continues to be driven by favourable patient demographics and demand for better quality healthcare and aged care services.” The REIT believes that its “enlarged portfolio of 49 high-quality healthcare and healthcare-related assets places it in a good position to benefit from the resilient growth of the healthcare industry in the Asia Pacific region.”
Parkway Life REIT added that “at least 95% of its Singapore and Japan portfolios have downside revenue protection and 62% of the total portfolio is pegged to CPI-linked revision formulae, ensuring steady future rental growth whilst protecting revenue stability amid uncertain market conditions.”
At the REIT’s current unit price of S$2.97, it has a PB ratio of 1.73. In 2017, Parkway Life REIT’s total return was 33.1%.