by: Tam Ging Wien
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Back in January 2019, we published an article entitled Parkway Life REIT – Invest in 2019 with Peace of Mind were we analysed Parkway Life REIT (C2PU.SI; PLifeREIT). Now one year on, we take a look at how it has performed compared to the rest of the Singapore REITs and consider if this is a REIT we would want to hold for the rest of 2020.
First things first, let’s look at the past performance of PLifeREIT since 01-Jan-2019.
It started last year at around S$2.60 and at this time of writing, it’s now S$3.66 giving investors a 40.8% capital gains. Including the current annualised DPU of 13.19c, the dividend yield at S$2.60 cost would be 5.1% which brings the total gains to 45.9% in just over a 1 year!
Comparing to FTSE ST Real Estate Investment Trusts (REIT) Index (FSTAS8670); the benchmark index used as the gauge of the overall performance of REITs listed in Singapore – has climbed from approximately 775 to 950 at point of writing, giving a capital gain of 22.6%. With a weighted yield of approximately 6.00% at the start of the year, the benchmark index total returns for the year comes in at 28.6%.
Turning to another commonly used benchmark, the Lion-Phillip S-REIT ETF which tracks the Morningstar® Singapore REIT Yield Focus Index. The Lion-Phillip S-REIT ETF can be traded directly on the stock exchange unlike the FTSE ST REIT Index. Over the last one year, it has climbed from S$1.01 to $1.20 giving investors a capital gain of 18.8%. Its dividend averages about 5.5% after accounting for the expense ratios and other cost giving a total returns of 24.3%, broadly in line with the performance of the FTSE ST REIT Index, but still behind the performance of PLifeREIT.
This means that PLifeREIT has beaten the benchmark index and returned investors over 20% extra returns compared to investing in the broad-based REIT index or ETF. Investors who have held on to PLifeREIT sine our article in 2019 would certainly be happy!
The STI has somewhat underperformed relative to the S-REITs, starting 2019 year at about 3060 and ending at 3142 at the time of writing giving capital gains of just 2.6%. Including the dividends of approximately 3.7%, an investor who had invested in the STI index at the start of the year would have just barely made 6.3% total returns.
A 6.3% returns investing in the STI is still good compared to parking funds in the savings account, CPF or in the Singapore Savings Bonds with returns around 0.25%, 2.5% and 1.8% respectively. In this short one year, investing in the STI would have netted the investor more than 2x the returns of their CPF ordinary account.
However, investing in PLifeREIT would be netted an investor over 7x the returns of the STI while investing in an S-REIT ETF would have 4x the performance of the STI.
It’s great to be holding on to a REIT that has market beating returns both in terms of the broader STI index and the sector specific FTSE ST REIT Index and Lion-Phillip S-REIT ETF. But how did it perform against the best performing REITs in Singapore?
According to REITScreener.com the best performing REIT in Singapore in the last 12 months is Keppel DC REIT followed by Mapletree Industrial Trust and Mapletree Logistics Trust gaining 70.1%, 44.0% and 42.9%. PLifeREIT was the 5th best performing REIT in the last 12 months at 28% capital gains.
On the flip side, not all S-REITs where profitable in the last one year with the following REITs making capital losses: Eagle Hospitality Trust, Soilbuild Business Space REIT and BHG Retail REIT. Fortunately for the later 2, the annual dividend yield could just help investors cushion some of their capital loss. We have discussed Eagle Hospitality Trust and The Queen Mary in our IPO reviews:
The investment thesis in early-2020 for PLifeREIT was as follows:
Does our investment thesis still hold one year from now?
FY2019 performance for PLifeREIT still shows that its increasing DPU and NAV per Unit trend is still intact. We have mentioned in our previous article that we like PLifeREIT because of long WALE and its “up only” rental review being pegged to the CPI will provide investors with clear future organic growth.
As for the full year FY2019, gearing for PLifeREIT stood at 37.10% and its overall all-in cost of debt is still showing a reducing trend at 0.80% currently. Interest cover is currently a very comfortable 16.4x.
Over the last 5 years, PLifeREIT shows a pattern of paying its dividends at approximately its free cash flow which indicates that the dividend payout is sustainable and not as a result of topping-up the differential with borrowings like what StarHub, Asian Pay TV Trust and Hyflux had done. This is one of the important criteria of our investments so that we can sleep soundly at night.
During FY2019, PLifeREIT had acquired three nursing rehabilitation facilities in Japan namely Hodaka no Niwa, Orange no Sato and Haru no Sato. This acquisition is expected to be DPU-accretive to the unitholders of PLifeREIT. The acquisition of these properties where completed on 13-Dec-2019 and is expected to fully contribute the PLifeREIT’s DPU in FY2020 giving it continued in-organic growth through acquisitions.
PLifeREIT has delivered market beating returns for investors in FY2019 beating out the broadbased STI by over 7x and the sector specific S-REIT Index by almost double.
While PLifeREIT is not the best performing S-REIT in FY2019, it’s still a great investment with over 45.9% returns throughout FY2019.
After a reassessment of PLifeREIT’s fundamentals, our investment thesis of still holds and we will continue to hold PLifeREIT throughout FY2020. However, we might take the opportunity in the current environment to lock in partial profit in PLifeREIT, but we certainly won’t sell out on this great REIT! With the profits that we have locked in, we are confident that we will be able to continue to hold it through any market volatility.
Real Estate Investment Trusts (REITs) are one of the most reliable way to invest as they generate steady and consistent tax free cash flow. REITs also open up access for investors to participate in a diverse range of real estate assets with low capital outlay. By having and applying the right investment toolkit at your disposal could potentially boost your investment performance many folds and/or help you reduce your REITs investment risk.
In the upcoming The Essential REITs Toolkit Webinar, we will be covering:
Some key highlights that will be covered includes:
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Meanwhile, do also check out the book REITs to Riches: Everything You Need to Know About Investing Profitably In REITs available at all major bookstores around Malaysia and Singapore. To purchase the eBook (PDF) copy, navigate to http://aktive.com.sg/store/reits-to-riches/.
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