Real Estate Investment Trusts (REITs) are some of the most sought-after investment vehicles in Singapore. High yields, stable dividends as well as need to diversify investment portfolios are some of the reasons why income-focused investors are increasingly turning to them.
Singapore REITs should be a key consideration for anyone planning to build a fixed or equity income portfolio. The total annualized return for S-REITs over the past four years has averaged 8.4% compared to 4.4% for the benchmark Straits Times Index.
Their ability to generate dividend income along with capital appreciation, makes them an excellent alternative to stocks, bonds and commodities investment.
Before carrying out a detailed analysis on some of the best S-REITs to invest in for optimized returns in Singapore, let us understand what these investment vehicles are all about.
What Is A REIT?
A REIT is a company that owns or finances income-producing real estate properties in various sectors. REITs are designed to provide investors and ordinary people, a way of owning part of a property or properties that under normal circumstances would be expensive to own.
REITs allow individuals to own or finance properties the same way they invest in other industries or stocks of companies. In addition, they provide an opportunity to benefit from investing in income-producing real estate.
Investments in REITs are mostly done through individual companies, exchange-traded funds or mutual funds.
REITs can broadly be classified into two types:
Equity REITs: These type of REITs own property in a wide range of sectors. For instance, they could own property for office spaces, shopping centers, hotels and even apartments. Equity REITs derive their revenue from rent paid by tenants in the properties they own.
Mortgage REITs: These type of REITs specialize in financing residential and commercial properties. Unlike Equity REITs they derive most of their income from interest earned on investments they make on mortgages as well mortgage-backed securities.
These type of REITs invest in properties that house healthcare facilities such as hospitals, nursing homes and assisted living homes. The success of these types of REITs is dependent on how the larger healthcare system performs.
When investing in healthcare’s REITs, one should look for one that has a diversified group of customers and investments in different property types. A diversified property portfolio goes a long way in spreading the risk thus ensuring a REIT is properly protected in case of a downtown in one asset property.
Healthcare REITs are some of the best, given that healthcare is a necessity which means people will always visit hospitals and nursing homes. Given that Singapore is grappling with an aging population, demand for healthcare facilities is only expected to rise, which should allow Healthcare REITs to continue generating significant returns.
Parkway Life REIT is the biggest Healthcare REIT in Singapore. The REIT owns the largest portfolio of private disposals including Mount Elizabeth Hospital and Gleneagles Hospital. The REIT also has some exposure in Japan, where it owns various properties.
Retail REITs invest in properties relevant to the retail sector such as shopping malls. Most shopping centers in Singapore are in one way owned by a REIT, which generates rental income. When considering an investment in Retail REIT one should consider whether the industry is healthy itself.
Retail REITs have come under pressure in the recent past as retailers close shop owing to reduced traffic to malls and brick and mortar stores. E-Commerce being the biggest headwind facing retailers now threatens to affect a key revenue stream for most retail REITs.
Occupancy rates and turnovers are key considerations when it comes to retail REITs. REITs with high occupancy rates backed by long lease terms are some of the best that any investor should consider at a time when the industry is under pressure.
In Singapore, one of the biggest retail-focused REIT is CapitaLand Mall Trust. The firm owns Bugis Junction, Bugis +, JCube and Raffles City.
Commercial REITs often specialize in properties that house office space. They make their money from tenants who sign long-term leases. When investing in Commercial REITs, one should consider the state of the economy, as well as the unemployment rate as the same goes a long way in affecting the number of businesses and companies looking for office spaces.
CapitaCommercial Trust is one of the biggest commercial REITs in Singapore as it owns the Capital Tower, and HSBC Building.
They invest in properties used for industrial purposes such as manufacturing facilities, warehouses, and business parks. Industrial REITs are assessed based on their occupancy REIT and location. Those that sign long-term leases are the best as the same goes a long way in guaranteeing a reliable stream of income.
Singapore’s booming industrial sector has made these investment vehicles some of the best given that industrial spaces are adaptable and can be converted to suit various needs.
Ascendas REIT is one of the most sought after in the space, as it owns some of the biggest business and science parks properties. It also owns retail properties logistics and distribution centers.
Residential REITs specialize in apartment buildings and other homes where people live. REITs with properties in areas where homes are affordable and close to crucial amenities are some of the best in this case.
Home affordability is essential as it ensures homes and apartments are occupied all the time thus allowing REITs to enjoy a reliable stream of rental income. Population and job growth is also an essential consideration as they go a long way in affecting demand for house and the amount of money tenants pay as rent.
The Best REITs to Invest In Singapore:
Ascendas is by far the biggest real estate investment trust in Singapore. The REIT specializes in Industrial property. Being the largest, the REIT has also returned the most, to investors, since its IPO in 2002. Estimates indicate that every $1,000 investment in the Trust since 2002 would have generated $3,140 including dividends.
Its recent earnings report indicate year-over-year growth in both revenue and net income, thanks to high occupancy rates. In the fourth quarter, the company reported revenues of S$862.1 million representing a 3.8% increase. Net property income was up 3% to S$629.4 million.
Distribution per unit in the quarter rose 1.5% to 3.91 cents. The REIT’s occupancy rate improved to 91.5% from 90.2% a year ago.
CapitaLand Mall Trust
CapitaLand Mall Trust is the second largest REIT by market capitalization in Singapore. The real estate investment trust invests and owns income producing assets used for retail purposes. The REIT owns some of the biggest properties in the sector including Clarke Quay, Junction 8 and Plaza Singapore.
The REIT has been one of the top performers in the industry as every $1000 invested since 2002 could has generated $2,010 inclusive of dividends.
In the fourth quarter, the REIT reported a 1.8% increase in revenue that came in at S$175.2 million. Net property income grew 4.7% to S$125.7 million. Distributable income to unit holder’s increased 2.1% to S$99 million as Distribution per unit grew from 2.73 cents to 2.78 cents.
Occupancy rate as of the end of the quarter stood at 98.9% a drop from 99.2% as of the end of last year.
Suntec Real Estate Investment Trust
Suntec Real Estate Investment Trust is another most sought after REIT in Singapore. The company owns a portfolio of properties both in Singapore and Australia. Some of its high profile assets include Suntec City, One Raffles Quay, and three other properties in the Marina Bay Financial Center.
In the most recent quarter, the REIT reported net property income of S$63 million versus S$61.8 million reported a year ago. Gross revenue was up S$90.7 million versus s$88.4 million. The REITs Distribution per unit as of the end of the quarter stood at 2.43 cents.
The REIT has however come under pressure in recent past given the dynamic retail scene in the country, a problem compounded by a high supply of office spaces.
Mapletree Commercial REIT
Mapletree sums up the top five largest real estate investment trusts in Singapore. The commercial retail deals with office buildings with its crown jewel being Vivocity a retail mall. Its portfolio comprises of five properties located in Singapore.
The company posted impressive fourth-quarter results whereby Distribution per unit rose to 2.28 Singapore cents from 2.26 cents as income rose 0.4% to S$64.8 million. Gross revenue in the fourth quarter was up 1.3% to S$108.9 million helped by a high contribution by Vivocity and Bank of America Lynch HarbourFront.
|REIT||SGX Code||Total Return YTD %||Dividend Yield |
|CapitaLand Mall Trust||C38U||11.8||5.5|
|CapitaLand Commercial Trust||C61U||22.2||5.4|
|Mapletree Commercial Trust||N21U||15.7||5.7|
|Mapletree Industrial Trust||ME8U||17.8||6.2|
|Viva Industrial Trust||T8B||29.6||7.9|
Reasons to Invest In REITs Singapore
Below are some of the reasons why you should consider investing in S-REITs.
Secure and Stable
S-REITs are some of the most secure and stable investment tools, for income focused investors. Given that the country is slowly emerging as a financial and technological hub, property prices are expected to continue rising.
The result should be an increase in rental income that REITs generate from property portfolio. Given that REITs in the country are required to disburse 90% of their income, investors are assured of solid returns no matter what.
The fact that the Island nation has limited land to expand means that in the near future, demand could supersede supply. The aftermath would be an increase in property prices which could see REITs generate even more in rental income. Investors would thus be able to earn more in terms of distributions per unit as well as dividends.
Monetary Authority of Singapore, which is the country’s de-facto central bank regulates REITs in Singapore. The regulator ensures that REITs borrowings in the country don’t exceed 35% of their total assets and can only borrow up to 60% with a credit rating from one of the three rating agencies.
REITs in the country are also prohibited from spending 10% of their total asset value on new development. All these regulations are designed to protect investor’s interest while ensuring they are able to generate maximum returns from investments.
However, it is important to be cautious as there are REITs manager that can mismanage a REITs in total disregard of the regulations.
Singapore REITs with property assets averaged 17.6% in total return last year, making them among the best when it comes to value generation better than the Straits Time Index.
Unlike in other parts of the world, real estate investment trust in Singapore are exempted from the normal 17% corporate tax. It is for this reasons they are able to offer high yields high yields on distribution of 90% if their distributable income as dividends
REITs dividends are also secured by stable rental income, from long-term leases that managers sign. Managers are also known to employ conservative leverage on balance sheet significantly reducing risk exposure.
Singapore REITs provide investors a unique opportunity to diversify an investment portfolio. REITs in the country own various types of real estate estates which ensure investors risk is spread instead of being concentrated in one area. The fact that they own properties from industrial perks to hotels to malls and hospitals all but ensures investors risk is well diversified.
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(By Neha Gupta)
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