Real estate investment trusts (REITs) have been a favourite investment choice for conservative investors because of their stable earnings qualities and high earnings distribution ratios.
Let’s talk about one REIT that’s well positioned to double your investment over the next few years: Sasseur Real Estate Investment Trust (SGX: CRPU).
First, some background
Sasseur REIT is the first outlet mall REIT listed in Asia. It invests in the retail outlet mall sector in the People’s Republic of China through its initial portfolio of four outlet malls in Chongqing, Kunming, and Hefei.
How can Sasseur REIT deliver a 100% return in the next five to seven years? The answer is through dividend income, as well as potential improvement in its valuation. Let’s get into some numbers below.
Firstly, Sasseur REIT investors will receive dividends for the foreseeable future — as long as the REIT can sustain its rental income.
In the most recent fourth quarter, ended 30 June 2019, Sasseur REIT paid out a total distribution per unit (DPU) of 6.805 Singapore cents. If we assume Sasseur REIT can sustain its DPU at 6.805 Singapore cents for the next five years, investors will have received about 34.03 Singapore cents in total dividends. At the current share price of S$0.78, this translates to a total return of 44%.
Note that we excluded growth in DPU for the sake of prudence, but it’s likely Sasseur will grow its DPU over time given that it has a pipeline of seven properties (as of 30 June 2019) that can be acquired.
Another way for Sasseur REIT to deliver investment returns to investors is through valuation expansion. In this case, we are talking mainly about distribution yield as the main metric for valuation.
Presently, Sasseur REIT is trading at a distribution yield of about 8.7% (based on a share price of S$0.78 as of this writing). Comparatively, the market average yield for the 42 listed REITs in Singapore is about 6.3%. In other words, investors’ sentiment for Sasseur REIT is rather negative at the moment.
There is a possibility investors might ease up on Sasseur REIT. Should that happen, it’s likely Sasseur REIT’s share price would revert towards the average of about 6%. If that happened, its share price would easily appreciate by 40% to 50% from its current price of S$0.78.
The bottom line
Sasseur REIT investors are well positioned to generate above-average returns over the next few years through dividend income and capital appreciation, assuming they invest in Sasseur REIT at about S$0.78 or less.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.
Motley Fool Singapore 2019