Mapletree, ParkwayLife, Frasers: Outperforming S-REITs in a Tough Market

Introduction 

Hey there, investors! Welcome back to the Investing Iguana channel, where we dive deep into the dynamic world of investing. I'm Iggy, your guide through the complexities of the market, and today we're focusing on a topic that's been on every savvy investor's radar – Singapore Real Estate Investment Trusts (S-REITs). In a market that's been grappling with high inflation and surging interest rates, some S-REITs have managed to not just survive, but thrive. We're zeroing in on Mapletree Logistics Trust, ParkwayLife reet, and Frasers Hospitality Trust – the standout performers in what many consider a tough market. Join me as we dissect their strategies, analyze their success, and understand what sets these S-REITs apart. So, grab your notepad, and let's get into the nitty-gritty of these market outperformers

In the midst of a challenging economic landscape, the performance of Singapore Real Estate Investment Trusts (S-Reits) during the financial period ending 30 September 2023 has been a mixed bag, with a majority reporting a dip in distribution per unit (DPU). Investment advisory platform Beansprout attributes this decline as a contributing factor to the observed weakness in the share prices of these S-Reits.
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The sector has been navigating through the rough seas of high inflation and soaring interest rates. However, there's a silver lining. As the yield on 10-year US Government Bonds retreated from its mid-October peak, the iEdge S-Reit Index rallied, posting a 9.4% total return. This upswing helped pare down the year-to-date index decline from 9.0% as of 31 October 2023, to a mere 0.4% by 23 November 2023.

3 S-REITS

Amid these industry challenges, three S-Reits have stood out by reporting an increase in their year-on-year DPU. Mapletree Logistics Trust (MLT) is one such example. Despite a slight dip in its H1FY2024 gross revenue and net property income, MLT saw a 0.5% increase in its DPU, reaching 4.539 cents. This was achieved even as MLT’s occupancy rate remained robust at 96.9%, despite a minor dip in average rental reversion, primarily affected by its Chinese properties.

Interestingly, MLT has been proactive in its portfolio management, announcing several property divestments in Malaysia, Singapore, and Japan, and continuing this trend into November 2023 with more divestments.
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​Another notable performer is ParkwayLife Reit (PLife), which reported a significant 24.6% year-on-year increase in its 9M2023 gross revenue, largely driven by higher rents from a new lease agreement for its three Singapore hospitals and contributions from newly acquired nursing homes in Japan. PLife's DPU also grew by 2.8% year-on-year to 10.99 cents, marking continued growth since its IPO in 2007.

Lastly, Frasers Hospitality Trust (FHT) showcased a robust recovery, with a 28.5% year-on-year increase in FY2023 gross revenue and a 30.1% increase in net property income, buoyed by the global tourism sector's resurgence. FHT's distribution per stapled security jumped a noteworthy 49.3% year-on-year to 2.4426 cents. Notably, FHT's overall portfolio value has increased by 1.7% year-on-year to S$1.93 billion as of 30 September 2023, with most country portfolios exceeding pre-Covid levels in terms of Revenue per available room (RevPAR), except for Japan.

Mapletree Logistics Trust (MLT) ​

As we gaze into 2024, let's break down what the future might hold for these REITs and what this means for you as an investor. Mapletree Logistics Trust (MLT) has demonstrated a commendable performance in 2023, which has positioned them strongly for the upcoming year. One of the key factors that marked their success was their ability to maintain high occupancy rates across their properties. This not only reflects the effectiveness of their property management strategies but also their ability to retain tenants, which is crucial in the real estate industry.

In addition to maintaining occupancy rates, MLT has also engaged in strategic divestments. This involves selling off non-core or underperforming assets, allowing them to focus their resources on more profitable ventures. This strategic move has improved their overall portfolio performance and has set a strong foundation for their operations in 2024.

However, the road ahead is not without challenges. The Chinese market, in particular, presents its own set of unique obstacles. The key to overcoming these challenges will be MLT’s approach to navigating this complex market. Their ability to adapt to market conditions and regulatory changes will play a significant role in their success in the Chinese market.

​Looking ahead, MLT plans to continue focusing on capital recycling and expanding their footprint in more stable regions. This strategy involves reinvesting the proceeds from their divestments into promising new properties or improving existing ones. If executed effectively, this could potentially lead to an increase in their Distribution Per Unit (DPU), which would be a positive outcome for their investors.
Investors should also closely watch how MLT manages their rental reversions and property portfolio diversification. These factors will be critical in sustaining their growth amidst global economic uncertainties. By effectively managing these aspects, MLT can ensure a steady stream of revenue and maintain a robust financial position, even in a volatile economic climate.

ParkwayLife REIT (PLife) ​

ParkwayLife REIT (PLife) has shown remarkable growth in 2023, laying a strong foundation for the upcoming year. This growth has been primarily driven by strategic acquisitions and enhanced lease agreements, which have not only expanded their portfolio but also strengthened their revenue streams.

One of the key strategies that PLife has adopted is the establishment of a third key market. This move is particularly intriguing as it indicates PLife’s ambition to expand its footprint and diversify its portfolio. If PLife successfully navigates this expansion while maintaining their stronghold in their existing markets, Singapore and Japan, we could potentially see further growth in their Distribution Per Unit (DPU). This would be a positive outcome for their investors, potentially leading to higher returns.

The healthcare sector, where PLife has a significant presence, is known for its resilience to economic downturns. This adds an element of stability to PLife’s portfolio. In times of economic uncertainty, healthcare REITs like PLife can offer a safe haven for investors, as the demand for healthcare services tends to remain stable, regardless of economic conditions.
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This makes PLife an attractive option for investors seeking defensive plays. By investing in PLife, investors can potentially benefit from the steady growth and stability of the healthcare sector, while also gaining exposure to PLife’s strategic expansion into new markets.

Frasers Hospitality Trust (FHT) ​

Frasers Hospitality Trust (FHT) has shown a strong performance in 2023, which bodes well for their prospects in 2024. This performance has been largely fueled by the global recovery of the tourism sector, a trend that has positively impacted the hospitality industry. However, the sustainability of this recovery will be a key factor to watch in the coming year. If travel and tourism continue on their upward trajectory, and FHT maintains its strategic approach to acquisitions and divestments, we could potentially see further growth in their Distribution Per Share (DPS).
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FHT’s strategy of diversification across geographies and asset types is another strength that could cushion them against market volatility. By spreading their investments across different regions and types of assets, FHT can mitigate risks associated with any single market or asset type. This diversification strategy not only provides a safety net against market downturns but also opens up opportunities for growth in various markets.

Conclusion

For investors eyeing the S-reet market in 2024, these three trusts offer different angles of opportunity. MLT’s strength lies in its logistics and industrial portfolio, PLife in the healthcare sector, and FHT in hospitality. Each comes with its unique set of risks and rewards. As always, the devil is in the details – keep an eye on the macroeconomic factors, interest rate movements, and sector-specific trends.
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In conclusion, while the future is never certain, Mapletree Logistics Trust, ParkwayLife reet, and Frasers Hospitality Trust have shown resilience and strategic acumen that bode well for their performance in 2024. As savvy investors, it's crucial to stay informed and agile. This is Iggy, your Investing Iguana, reminding you to do your due diligence and keep adapting your strategies to the ever-changing market landscape. Until next time, stay smart, stay invested!