Ep 75: 3 REIT Themes with the Biggest Potential in 2021

Finally, year-end, everybody’s lethargic, nobody really wants to do much. So I capitalized on that time, took a few weeks to really look into some of these companies, some of these REITs in the Singapore exchange, and I have built a small little portfolio of S$15,000. And I do hope that in five years time, I’m going to compound and keep adding money to reach about a six figure, like S$100,000 portfolio. And that should be enough for a really, really long time because I don’t spend a lot. Think about it, if my REITs portfolio can get me about 5 to 6%, with S$100,000, I could easily get S$6,000 and that is more than enough for me to travel around, backpack in Vietnam, Myanmar, Malaysia, whatever.

So in Southeast Asia should be pretty simple unless I have decided to buy a house and settle down, then things may be a little different by then. But as of now, okay, I think that’s a fair goal. And I’m sure it’s a, REITs are an extremely popular product in Singapore. Many of you probably own some, whether you are using a robo or whether are you using like an ETF or whether you just directly buy some of these REITs, I’m sure it’s pretty popular la huh. 

And I legit think that it is, because Singaporeans have this serious fascination with owning a property. And, of course the dividend yield is pretty decent, and of course we don’t tax dividends so it is very okay for some of these companies to give out dividends, right. And so this phenomenon exists and I think there are many explanation. I won’t go on the route of trying to find a cause of it. But generally there’s this phenomenon. 

And for those who have no clue about REITs, I think you can check out episode 54, 3 REITs concept to level up your game.I love that episode. It should give you a much better idea as to what are we gonna talk about, right. But essentially a REIT is a group of properties put together in a company form. And then they sell the shares of that company. So indirectly you own a portion of the property. Of course, if you want to go technical with me, yeah, it’s a trust, it’s not a company, blah, blah, blah. 

But generally you get the idea, right. In the concept of understanding things from a share’s perspective, you’re owning a part of the company. And then the company takes this money and goes on a shopping spree and buy all these different properties.

And you own a part of the property and you own a part of the rental yield of the property. And I think because REITs are so popular, there are a lot of people that write, you know, various articles about it. And I think there’s a series of articles that Sudhan wrote on Seedly. And I think he has given his metrics as to what does he look for in a different REIT.

And I won’t delve deeper into the nitty gritty, but you can go and take a look at his articles, Sudhan from Seedly, talk about REITs. All the REITs, he has evaluated everything. From things like price to book ratios, dividend yield, gearing ratios, all those are important and they are important at a REITs level because you’re owning a REIT, it’s a security. 

But we cannot forget, right, under the REIT, it is a bunch of properties, right? And today that’s where I’m going to focus on. Of course I’m not saying that gearing ratio, you know, dividend yield, price to book, all those are not important, they are very important, you know, but before we get to all those valuations of the REITs, all right, I want to talk about the property themes. And to me, that forms a fundamental of a REIT. You cannot forget that you are investing in properties using a REIT. Okay? So that is where I come from. 

And before we go into the themes, I want you to know that this is for entertainment and education purposes. It is not a recommendation. Under no circumstances should you take this as a recommendation of any form, okay? 

So point number one, my first theme that I’m investing in is the resilience of neighborhood mall traffic in Singapore. So I think by now you should have already observed that the malls in your neighborhood are still packed, right? Like the foot traffic is very steady, for lack of a better way to put it.

I think the foot traffic has went up quite a bit, right. Since phase two, since phase three and for whatever reason, I won’t speculate. But there’s just a lot, a lot of people. And they’re honestly only two major mall REITs in Singapore. Of course, some of these other REITs have also some malls. 

And at the moment I have both of them, they’re all sold down during the COVID situation, the financials also reflect the decline in rental yield. Because I think they’ve given out rental rebates during the lockdown period. Essentially, they’re trying to keep these guys from leaving these malls and they just tell you like, okay, you don’t pay rent la. You stay on la. And when the malls open up, then let’s see how it goes. And clearly, it works lor, right?

As a landlord, if you want to keep your tenants during tough times, you lower your rent or you just give them free and they stay on. And they stayed on and now more traffic has, you know, roared back. And truth be told, the strategy worked because the mall occupancy rates are still around 95%, right. Between Frasers Centrepoint and CapitaLand.

And in the next half a year, you probably should see rental yield return to normal and dividend distribution to come back to the usual expected standards. I’m also expecting the REIT prices to rise as a result of the increase in dividend yield from the 2020s low, because that’s kind of what a lot of people invest in REITs for the dividend yield.

So as dividend yield comes back because of rental yield coming back, then very high chance, you know, the REIT will reflect that increase in a dividend yield through some sort of capital appreciation. I mean, it means the REIT become more expensive la. And I think we cannot deny that, you know, going to the malls, it’s a very intertwined part of the Singaporean weekend life, or even a Singaporean life.

Honestly, you come out of the MRT, right? There’s a mall. Every major MRT has a mall. Right. And some malls are bigger than others. I think like, in Tampines, there are  like three malls, right. Because in Tampines, it holds 5% of Singapore’s population. So three malls, I think it’s a relatively understandable, but from where I see it, the government will not give up land parcels to build shop houses anymore, right? 

Most of the time when they give out land parcels, it will be for integrated kind of development and very, very big malls. And only the big boys can really play this game, right. So for lack of a better way to put it, these neighborhood malls, they are so intricate in our social lives. And I really think it’s very hard for you to build another mall next to some of these big malls, because there’s just no space already next to the MRT.

So it’s very hard to see another Clementi Mall, very hard to see another, like, Tampines Mall, very hard to see another White Sands,  you know, it’s just what it is. So given that the commercial spaces around a lot of these heartland districts are dominated by the malls, then I’m expecting this intertwined relationship with the malls to continue to stay, right?

And that’s why I picked up some of these malls and I know some people say retail is dying, which I don’t deny. I mean, you see Robinson closing down, right. And, you see like BHG, Isetan, all these no more already. But space is very interesting because as we’ve established, in Singapore, there’s limited space, right? The government keep telling you there’s limited space. What happened is that as all these BHG, Isetan, Robinson shift out, right. People like Decathlon, Jusco, you know, whole slew of new makan places, and of course I’m benchmarking Funan Mall la, as the future of malls. And they all come in and take over their space. 

And if you actually go to look at the breakdown, a lot of these, like, big guys, right, whether is it a Decathlon or whether it’s your NTC, Cold Storage, they actually pay very little relative to the other small shops for rental space, but they form the anchor tenant. They bring in traffic. So as long as the malls can continue to kind of gather all these anchor tenants — you see some of these malls very jialat wan, because they’re not… they don’t have anchor tenants. They don’t have the big cinemas. They don’t have big supermarkets. They don’t have the library. They don’t have all these, you know, big ass retailers in them, right? 

So for all the other guys that have these anchor tenants, they can continue to drive traffic. They can continue to command a very good rental yield. And as a REIT owner, you can continue to get very good dividend yield, right? So that’s kind of where I see it. 

Which brings me to my second theme that I’m investing using the REITs, it is the Southern Waterfront development. 

I think somehow, you know that our port is shifting to Tuas, okay. We will be unlocking all the space in HarbourFront, the Southern Waterfront for other developments. And the developments we will expect predominantly luxury residential and maybe some mixed development, okay. 

Either way it will be predominantly residential in my view. Why? Because firstly, from a city planning viewpoint, we have already dedicated the whole of Shenton way and Marina area for our CBD. Which is where most commercial activity will be centralized. And we love to centralize everything in Singapore. And there’s some real benefits in centralizing. I will not go there, but what you need to understand is I think there will be minimal commercial spaces or retail spaces in the Southern Waterfront. Limited new ones, okay. 

Commercial spaces will make limited sense, from a foreign capital viewpoint because for lack of a better way to put it, why are we unlocking this space in the Southern Waterfront? We want to bring in hot money from foreigners la, right? We want all these guys from out there that made money, to come and buy residential property and, you know, bring their money into Singapore and continue to spur the economy as we manage their money. That’s about it, right? 

So on that note you will realize that commercial spaces, they don’t really make a lot of sense, especially in today’s world. Gone are the days of strata malls. Nobody sells strata malls anymore, right? So a lot of these commercial spaces will be developed and built by the big developers, CapitaLand, Fraser, you know, CDL and they’re very much, you know, like how the mall management arrangement is done. They own the whole building and then they will lease out to different, different people, right. 

So the big developers would take on the whole project. And in that sense, then there’s no room for residential property, right. So there may be a chance that it will be a mixed development where at the bottom, you know, kind of like, Bedok Mall, kind of like Sengkang Compass One, you know, those kinds of places, where downstairs the mall, upstairs the condo, and then they will sell upstairs and manage downstairs. And that’s kind of just how it is, right. 

So recognizing that in the whole Southern Waterfront, you know, from all the way from the start of Vivo City, all the way to your Pasir Panjang, to your Telok Blangah, all the way down. Okay, if you have ever drove down that road all the way down, all the port will be moved away, right. And there’ll be a lot of these kinds of developments coming. So what I’m expecting will be population density in the Southern Waterfront to easily, like, go tenfold because at this moment in time, barely any development. Like Keppel Bay, Reflections, just a few, right?

So if this whole area becomes residential, then very likely it’s going to increase 10 fold and with more people means more business, more activity. And there is one REIT that is a possible monopoly in this part of the world. So if you drive down the whole Harbourfront-VivoCity road, there’s one REIT, okay. It’s called Mapletree Commercial Trust. They own VivoCity, PSA building, Mapletree Business Park. Almost every big building, if you drive down the Southern Waterfront, at this moment in time are owned by them. And all the bigger fancier ones la essentially. 

So to capitalize on this potential new growth — and actually it’s a very resilient REIT if you look into their financials, but I won’t break that down today. But just on this theme of developing in the Southern Waterfront, I don’t think I can own physical… like, I don’t think I can all residential buildings there yet.

So because of this whole development the next 5 to 10 years, I am going to own the REIT, right. And I think there will be a lot of activity here and why not just buy the REIT now? Of course, the REIT has also been sold down because 50% is VivoCity. And then I think the rest is all like commercial space, right? So commercial, retail has all been sold down as a result of COVID, but I do think all these spaces will come back up. 

Which brings me to the third theme that I’m going to invest with. And that is global supply chain shifts, and the rise of end to end robot production facilities. And yes, the time of the Matrix is here. And clearly, you know which era I was born in ah. 

Either way you get an idea that end to end robot production is very normal these days, right? It’s like everywhere. You have a few technicians, very little people on the supply chain. And you should continue to see more and more of this way of manufacturing happening in different sectors, beginning with things like pharma, you know, high end manufacturing, microchips, all those things. It’s already happening, right? But you’re going to probably go see more and more and more. 

So you’re going to see robots taking over manufacturing, like every other level of production. So robots have gotten to a whole new level today, and it’s not very difficult to observe that. In other words, it also means that labor costs may no longer be the biggest concern and companies will look into costs of transportation, reliability of supply chain.

And if you are interested in this space, you should probably read the DHL 360 resilience report. They’re probably the largest, one of the largest global supply chain company. And their report has talked extensively about, you know, how supply chains are shifting all around the world. It is… many people are trying to shift away from relying on China as their only supply chain.

And so in their 2019 report, they state that about 30% of companies are thinking to shift their supply chains out of China and are considering ASEAN, with Vietnam leading the pack at 11%. And even Singapore is about a 0.7% consideration. So I think there is some value here because in Singapore, you know, we are like the supply hub.

And if you can manufacture things here or last mile manufacturing, then essentially you don’t really need to have too complex of a supply chain management and you can cut down on transportation costs. So, however you see it, there will be more global supply chains centralized in ASEAN and in Singapore, we should have an increase in manufacturing activity with state of the art robots and, you know,, I don’t think we will bring in like, you know, sewing and all those kind of stuff anymore.

But I’m betting on us attracting a lot of these high end manufacturing. And so because of that, I own this REIT called ESR and that’s the largest industrial REIT in Singapore. And I think they have made the news because of a failed merger with Sabana. But more importantly, I think industrial spaces are underappreciated here in SG, right? Of course many Singaporeans  think that industrial spaces are not needed anymore. We still produce anything meh? But as more and more people are shifting out and there’s a new way of manufacturing, I do think that we will be attracting and capitalizing on this shift, you know, as a result of our port, automation, environmental friendly, low tax environment to operate out of.

So I think we will be getting a lot more increase in manufacturing activity as we go along in the next 5 to 10 years. So, yes, at this moment in time, you’ve probably heard me share four different REITs that I own: ESR, Frasers Centrepoint, Mapletree — Mapletree Commercial to be exact and CapitaLand, right.

And you ask me like, eh, Reggie, aren’t you buying every single REIT in that case? I’m like, eh, no, no, no, no, I’m not. I don’t own medical properties like hospitals, aging homes. I don’t own data centers. I actually like data centers, but I don’t like the ones that Keppel owns. Because if you think, and if you understand how data centers work, right, then you will look at companies like Equinix.

And you will look at the much, much bigger kind of data center REITs all over the world and not just Keppel DC. And of course there are a lot of malls abroad, commercial, hospitality spaces. So I don’t own every single REIT out there, of course you can. I think you should if you have no idea of how to invest in REIT. Broadly diversify. But for me, I do take a little bit of joy and pleasure in picking my  own stuff. I may win some, I lose some, it’s fine. 

For me, it’s a journey. And as long as I continue to make more than I spend, then you know, I’m very good la, very safe. And if you want to see the full portfolio, come onto the Telegram group and say, eh, Reggie, I want to see. And I will screenshot to you and I will share with you what I’m buying and where I’m buying.

And hopefully in five years time, I will reach that $100,000 REIT portfolio. And that gives me an average of about 6%. Then I’m good to go for life in Malaysia. [Laughs] So I’m going to sum up these three themes that I’m investing in from a REIT perspective. 

The number one is the resilience of neighborhood mall traffic in Singapore. Number two is the Southern Waterfront development. And number three is global supply chain shifts and the rise of end to end robotics production facilities. So I’m actually very supportive of Singapore economy. And I think we have a good ride ahead of us, right. So I hope you learned something useful today. See ya!

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Test test. Okay, awesome. Hope you learned something, give you some ideas. Maybe you want to invigorate yourself with some thoughts about, you know, where do you want to put your money. But once again, it is for entertainment and education. It is not a recommendation by any means, right? And later this week on Thursday, I will be having a guest on and his name is not unheard of. His name is Ser Jing, the author behind The Good Investors. And also the guy behind the Compounder Fund. 

So he’s coming on to talk about how does he pick his stocks, right. When does he really buy these things and is valuation important to him, when does he sell, and all this kind of stuff. So essentially we’re getting him on to talk about stock picking and his strategies and whatnot.

And next week, I am gonna do a cut out of his interview. So whenever we interview people, what happens is, we have to talk out with them first, right? Like enjoy, warm them up first, so they don’t sound very weird. And sometimes during that singsong time, we have very, very good content and for Ser Jing, it’s especially good.

So we decided to cut out that whole part and make into an episode, right. Where he comes on and talk about some of the random stock ideas that he has. And, essentially I think it’s good enough to be an episode, so that’s going to be it. And I can take a break from one week. Also, we have launched a new property podcast called the Coconut Avenue with guest starring Maureen Lee, you know, someone that’s very popular on this podcast already. For over the next few weeks.

And every Wednesday, you should be able to hear her, Maureen, on Coconut Avenue, which will be hosted by Troy, my cohost. And it’s going to be really fun. We’re going to talk about like property investing all around the world, but we started Singapore first. And essentially, we’re trying to give you a better idea of what do you look out for in the property investment space, right?

Because we think it’s saturated with sales-heavy advice, once again. So, yeah. Sign up for Coconut Avenue and stay tuned for the next few weeks of content. It’s going to be real fun, investing is one of our favorite topics. And I know it’s one of your favorite topics, so yeah, stay tuned. Continue to support the podcast. Love you, see ya, bye-bye!