Singapore Office Building Supply: REIT Play

In the current and next year, significant supply of office space came and will come into the Singapore CBD market, 1.7m sq ft in 2016 and 2.2m sq ft in 2017.

According to Edmund Tie & Co, office rents is expected to decline further. I got interested when I saw that only 808,000 sq ft of space is expected to complete in the CBD from 2018 to 2020. While rental rate will either stay flat or trend downwards next year, it will likely to start turning back up in 2018-2019.

So looking forward, depending on lease renewals, gearing, rights issue, etc for REITs, income will likely to come down along with valuations for the pure office play. Not withstanding the economic outlook for Singapore in 2018-19, we maybe looking at some bargain hunting opportunities next year.

I look for yield of 6.5% or above as that is my target. Potentially, if some panics selling off were to happen, maybe due to external factors or negative sentiment or economic views of Singapore, yields can perks up and that can be a good time to pick up some REITs.

The caveat is this play will require patience to watch and holding power of 2-3 years, potentially.

The trouble with some of these Singapore REITs is that either they mix office properties with retail properties or they mix Singapore properties with overseas properties (like in Australia).

What I want is a pure or almost entirely office building play and assets only located in Singapore.

I am looking at 4 of these REITs.

1. CapitaLand Commercial Trust (Stock quote: C61U.SI)
2. Keppel REIT (Stock quote: K71U.SI)
3. Mapletree Commercial Trust (Stock quote: N2IU.SI)
4. OUE Commercial REIT (Stock quote: TS0U.SI)

1) CapitaLand Commercial Trust

Portfolio:

• Capital Tower, a Grade A office tower
• Six Battery Road, a Grade A office tower
• One George Street, a Grade A office tower
• Raffles City (60% interest via the RCS Trust), an integrated development with an office tower, a shopping mall and two hotels and a convention centre
• CapitaGreen, a Grade A office tower
• Twenty Anson, a prime office building
• HSBC Building, a prime office building leased to HSBC
• Wilkie Edge, an integrated development with office and ancillary retail units
• Bugis Village, shop houses for office and retail use
• Golden Shoe Car Park, a car park with over 1,000 lots and retail shops on the ground floor

Dividend yield: 5.74%

http://www.cct.com.sg

2) Keppel REIT

Portfolio:

• Ocean Financial Centre
• One Raffles Quay
• Marina Bay Financial Centre
• Bugis Junction Towers

Dividend yield: 6.07%

http://www.keppelreit.com

3) Mapletree Commercial Trust

Portfolio:

• VivoCity (Retail)
• PSA Building 
• Mapletree Anson
• Bank of America Merrill Lynch HarbourFront 
• Mapletree Business City I 

Dividend yield: 5.89%

http://www.mapletreecommercialtrust.com

4) OUE Commercial REIT

Portfolio:

• OUE BAYFRONT
• ONE RAFFLES PLACE
• LIPPO PLAZA (Shanghai)

Dividend yield: 7.88%

http://ouect.com

While all 4 of these have their individual minuses, they can be attractive if their yields jump up to 7-10% because of price corrections.

I'm a dividend hunter. That's not a secret. I also have a portion of my money for trading purposes. Furthermore, my time horizon (10 years or more) is pretty long. The dividend yield that I am willing to accept can range from 2.5% to 13% depending on the particular objective. Overall if I can achieve and average of 7%, it's fine for me.

If you are a young person putting money aside for old age, it's ok to pick up some of these REITs. As a unit holder, you will receive annual reports. Usually they will attach a form asking you if you want to receive your dividend in the trust units or cash. Do sign up to receive your dividend in units. That will allow you to enjoy her compounding effect of your nest egg.

Like I said in my previous entries, I live a relatively frugal life. So even if my overall dividend income for a particular year drops by 100 basis points, it doesn't alter my lifestyle or affect my happiness insomuch as money being a utility in my life. My mantra is either you earn more or spend less.

As you can see above, I won't say which of these that I like because what I do on a particular play may not be suitable for you. And do your own due diligence on the management of the company/trust, gearing, and other parameters.