Singapore REIT to invest in

Singapore’s REITs – high-risk investment or safe haven?

With the real estate market inside a downturn, can REITs be far behind? After all, residential prices will be in a free-fall for over two years. They declined by 4% in 2014 after which again slipped another 3. 7% in 2015.

Market analysts say that values could tumble an additional 8% this year.

Industrial property prices have fared no much better. With the downturn in the manufacturing sector, values fell through 4. 8% last year. In the first quarter of this season, industrial property prices have lost 2. 5% of their value when compared with Q4 2015.

In fact, the entire real estate sector, barring several exceptions, is going through a rough patch. In these conditions, it may be best to stay away from investing in property till the marketplace bottoms out.

But investors may want to consider putting their money in Investment Trusts (REITs) instead.

With a little careful preparing and research, it is possible to make a tidy make money from the lucrative business of property ownership without carrying some associated with its attendant risks.

Singapore REITs – A REIT is essentially a trust formed using the specific purpose of raising capital to purchase real estate property. The rental income from these properties is then distributed in order to unitholders.

Singapore’s REITs or S-REITs are closely regulated and monitored through the Monetary Authority of Singapore (MAS).

One of the most crucial rules that an S-REIT follows is that it has in order to distribute 90% of its taxable income to unitholders. In addition for this, unitholders are entitled to the capital appreciation in the properties which have been purchased by the REITs.

Since being established in 2002, the S-REIT market is continuing to grow tremendously. It is now at a stage where it compares favourably with other REIT markets in the area.

Currently, with a market capitalisation of US$48 billion, the S-REIT market is about half how big the Japanese and Australian markets and double Hong Kong’s REIT marketplace.

Performance of S-REITs – The Singapore Exchange maintains the SGX S-REIT 20 Catalog. Its 20 constituents have a combined market capitalisation of $52 million.

According to information issued by the Singapore Exchange, the SGX S-REIT 20 generated an overall total return of 2% in the month-to-date (data as associated with 22 March 2016). This compares favourably with the Bloomberg Asian countries REIT Index, which gained 0. 5% in SGD basis within the same period.

The index has maintained a dividend yield associated with 6. 3% compared to the Bloomberg Index yield of four. 5%.

As compared to the SGX S-REIT 20 Index deliver of 6. 3%, several individual S-REITs had better performance. Cache Logistics Believe in, which has a market cap of $0. 8 billion and it is an industrial REIT, had a yield of 10. 3%.

OUE Food Trust, which concentrates on the hotels and resorts sector, and it has a market cap of $1. 2 billion, had a deliver of 9. 7%.

High-performance S-REITs – The largest S-REIT, CapitaLand Shopping mall Trust, which has a market cap of $7. 7 million, yielded 5. 4%.

In its results for the quarter finished 31 March 2016, CapitaLand Mall Trust reported substantial growth. Major revenues of $179. 8 million compared favourably with $167. 35 million achieved last year. Distributable income to unitholders jumped from $92. 86 million last year to $96. 75 million.

Mapletree Industrial Trust has been switching out a stellar performance. It has generated a total return of 42% during the last three years. It has done well for its unitholders since its IPO this year.

One of its major strengths is that its portfolio is well diversified with investments in properties within the wholesale, retail, manufacturing, and trade sector.

Mapletree Commercial Trust is another S-REIT by having an impressive performance. With a three-year return of 23. 7% along with a dividend yield of 5. 7%, it has bettered the performance of numerous of its competitors.

But not every S-REIT has turned out great results. A quick glance at SGX data will make that really apparent.

While it is definitely possible to identify high-yielding S-REITs, a solution for retail investors who don’t have the time or inclination to make a deep study from the performance of each S-REIT is in the offing.

SGX to launch ETF for S-REITs – Based on a report in the Financial Times, SGX is considering the launch of the exchange-traded fund (ETF) for S-REITs soon.

Sonny Suntan, chief executive of REITAS, a trade body that promotes the actual S-REIT industry, says, “REITs can be an effective investment alternative for Singaporeans to take part in the investment property market given its regular and attractive dividend payment, low investment threshold, and flexibility of entry and exit like a listed share. ”

The launch of an S-REIT ETF will broaden the market and make this investment opportunity available to some larger number of retail investors.

More importantly, they will not be susceptible to the performance of individual S-REITs, but will be able to enjoy the performance of the entire pool of trusts in the ETF.

Singapore’s Billion Dollar REITs using the Best Yields

The Singapore stock market boasts of 20 investment trusts (REIT) with market capitalisations of over S$1 million.

Each of those REITs have something unique to offer. A current report provides some insights to the distribution yields and the performances of those billion-dollar REITs. Here’re some highlights from the report (figures by 13 May 2016, unless otherwise stated):

The SPDR STI ETF (SGX: ES3), an exchange traded fund that mimics the basics of the Straits Times Index (SGX: ^STI), may serve like a good benchmark for comparison for the individual REITs. As associated with 24 May 2016, the SPDR STI ETF has a dividend deliver of 3. 6%.
CapitaLand Mall Trust (SGX: C38U) is the largest REIT in the list and it is a component of the Straits Times Index. The mall proprietor offered a 5. 3% yield. CapitaLand Mall Trust also were able to increase its distribution per unit (DPU) from 9. 36 cents this year to 11. 43 cents in 2015. Total returns over yesteryear five years for the REIT was almost 38%.
Ascendas Investment Trust (SGX: A17U) and CapitaLand Commercial Trust (SGX: C61U), another two aspects of the Straits Times Index, are also on the billion-dollar checklist. CapitaLand Commercial Trust offered a dividend yield of 6. 2%, greater than CapitaLand Mall Trust. However, in a recent quarterly report, CapitaLand Commercial Trust also cautioned concerning the “new above-normal office supply” in 2016 which may put stress on rental yields for offices; CapitaLand Commercial Trust’s portfolio is composed mainly of offices in Singapore.
In the list of billion-dollar REITs, the actual trio of Mapletree Commercial Trust (SGX: N21U), Mapletree Commercial Trust (SGX: ME8U), and Frasers Commercial Trust (SGX: ND8U) stick out. All three REITs recorded total returns of over 100% previously five years.
Not all REITs had turned out to be good investments in the last five years. CDL Hospitality Trust (SGX: J85) is one REIT which had delivered negative total returns previously five years.
The best yields may not come from a higher distribution yield alone. Each REIT comes with a different danger profile. As Foolish investors, we might want to put our thinking hats on to obtain the REITs with distributions which are sustainable and if possible, are able to grow over the long term.