To The Moon

$CapLand IntCom T(C38U.SI)$ $Mapletree Ind Tr(ME8U.SI)$ $LION-PHILLIP S-REIT(CLR.SI)$

Hi everyone, welcome back. Let's start with the key updates that have recently impacted REIT share prices. The biggest challenge REITs are facing is the rising long-term borrowing costs. Over the past year, these costs have increased significantly, with the US 10-year yield reaching a high of 4.6% at the time of filming. As long-term borrowing costs rise, REITs have to pay more in interest expenses, which is a headwind for them. If you're thinking about buying some REITs, this article is for you.

Inflation Is Gone?

However, there might be a small turn of events. The core inflation rate in the US has slowed down to 3.2%, which is less than expected. This decrease in inflation suggests that it could subside in the longer term. Key benchmarks are being watched closely to understand how persistent inflation will be, as it impacts sentiment on REITs.

Recently, US 10-year Treasury rates have come down sharply, which is good news. This also affects Singapore's borrowing costs, which can be tracked by the Singapore 10-year bond yield. The trend looks similar to the US, with rates coming down from May to September and then rising above 3% again. As a side note, this means that the March issue of Singapore Savings Bonds might be quite attractive.

Is SG Interest Cost Getting Worse?

Surprisingly, the interest cost for Singapore REITs is not getting worse. The Singapore 10-year bond yield has not reached its one-year high and is still at 3%, compared to the US at 4.6%. This means most REITs will be refinancing at rates between 3.5% to 4.5%, which is not much higher than last year's interest costs. So, the pain might not be as severe as expected.

Now, let's look at market sentiment and correlation. When the 10-year yields went up in September, REITs went down, and vice versa. As investors, we need to stay patient. In the next segment, I'll share my personal suggestions on what to buy.

The reason interest costs aren't worsening is that the Singapore 10-year bond yield hasn't reached its one-year high; it's still at 3%, compared to the US at 4.6%. This means most REITs will be refinancing at rates between 3.5% and 4.5%, which isn't much higher than last year's interest costs. So, the additional financial burden is relatively minimal.

Now, let's shift our focus to the more important aspects: correlation and market sentiment. When I plotted the STI index against the Singapore 10-year yield, it became clear that in September, as one went up, the other went down. Before September, the reverse was true—when the 10-year yields decreased, REITs experienced a significant rally. As investors, we need to remain patient.

What SG Reit To Buy

In the next segment, I'll share my personal suggestions on what to buy. I recommend focusing on the bigger names like CICT, Ascendas, Mapletree Industrial, and Mapletree Logistics. These are dominated by CapitaLand and Mapletree, both of which have strong backing. Smaller REITs typically borrow at higher rates due to lower credit ratings and may not have the same opportunities as these larger REITs.

S-Reit

Weak Europe Country Currency

In the past, I've invested in smaller names that can outperform blue chips, but for now, we need to weather the headwinds and buy the dips. Another important point is that many major global currencies have crashed. The Australian dollar and British pound have both declined, which is bad news for those who have invested in residential properties in Australia and the UK. Similarly, the Euro has also dropped significantly.

Given this situation, I'm cautious about certain REITs. For example, IREIT Global is fully invested in Germany, Spain, and France, and Elite Commercial REIT is fully invested in the UK. Is it really a good time to buy these REITs? I'm not sure. The REIT PR teams might not be happy with my view, but this is just my personal opinion, and it could change in the future. I'm raising these points for your consideration because we're facing significant challenges right now. Let's stick with simpler, more stable investments.

Now, let's move on to what I own and what I think is worth looking at. Personally, I have investments in Mapletree Industrial Trust, Mapletree Pan Asia Commercial Trust, Frasers Logistics & Commercial Trust, and Ascott Residence Trust. You can find tutorials on my channel to understand these better. It's important to believe in the underlying properties of the REITs you invest in, as they should grow and provide dividends over time.

CapitaLand Integrated Commercial Trust (CICT)

The second name I suggest is CapitaLand Integrated Commercial Trust (CICT), a more household name. I'm sure you've visited Capital malls like Plaza Singapura, Bugis Junction, and Raffles City. If you've been to ION Orchard, you'll know it was acquired from their parent company into CICT. When this transaction occurred, existing shareholders were paying over $2 per share. Currently, if you can buy for less than $2, you might be getting a discount.

CICT appears to be growing their dividends again, as indicated by the arrows in the chart. I'll continue to share updates once they release their results in February. The current dividend yield is about 5.5% for assets you're very familiar with, such as Singapore malls and offices.

Mapletree Industrial Trust

At the current share price, you're essentially buying in at the same level as those who participated in the private placements when they announced the acquisition of Japanese data centers. Over the past year, nothing has changed for data centers; they remain well-positioned for the future digital economy.

Next, let's look at their track record in growing dividends. You'll notice that they've consistently increased their dividends, except for the recent years when interest costs skyrocketed, causing a plateau in dividend growth. However, I'm optimistic because the dividends per unit have been on an upward trend over the last two quarters. At the current share price, Mapletree Industrial Trust offers close to a 6% dividend yield.

For me, owning quality names allows me to sleep well at night. Let the share prices fluctuate, and over time, as these headwinds subside, the share prices will naturally trend upwards. I'm very confident in that.

Conclusion

Investing in REITs allows you to sleep well at night, knowing that while share prices may fluctuate, they will naturally trend upwards over time as headwinds subside. I'm very confident in this.

Consider this: if long-term borrowing costs decrease, REIT share prices could easily rise by 15%. We saw this happen recently in September. There was a lot of chatter about whether it was too late to invest in REITs. If you were keen to buy back then, you're now getting a 15% discount.

So, why not invest in something long-term and comfortable for you?

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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