Investing in real estate is part of the Singapore Dream. Own property, become a landlord, enjoy a consistent stream of rental income until the end of your days.
… I did say it’s a dream, right? In truth, being a landlord always sounds much nicer than it actually is.
For a start, you need buttloads of money to even think about becoming one. Most of us can barely scrape together enough for an HDB flat to live in, let alone become a property magnate.
Then there’s the ongoing business of finding and managing tenants, chasing for rent payments, sorting out air con and plumbing problems when they inevitably arise… When it comes down to it, being a landlord is neither as cushy nor glamorous as it seems from the outside.
So what if you want to be a landlord, but can’t? You invest in real estate investment trusts, better known as REITs. This is REITs 101.
- What are REITs?
- What kind of returns can you get from REITs?
- How do you choose a REIT?
- Top Singapore REITs in 2018
- How can you start investing in REITs?
What are REITs?
Singapore REITs are listed companies that you can invest in, similar to how you would buy shares in other companies. But unlike other listed companies, REITs use investors’ money to buy, operate and manage properties rather than run businesses.
There are currently 35 REITs in Singapore. They can be subdivided into these property sectors: office, retail, industrial, hospitality and healthcare.
Even if you’re a total beginner to investing, you’re probably already familiar with some REITs. For example, CapitaLand Mall Trust, a retail REIT, is one of the best known in Singapore thanks to its string of “cloned” shopping malls. Another one that might ring a bell is industrial REIT Ascendas, which manages business parks like Science Park and Changi Business Park.
When you invest in a REIT, you’re investing in the properties managed by that REIT. In a sense, you become part-owner of those shopping malls or business parks. Whatever the properties earn in rental income, some of that money is paid to you in dividends. Woohoo!
What kind of returns can you get from REITs?
If you invest in a REIT, you can expect it to yield between 5% and 7% a year in dividends (paid out quarterly or every 6 months).
How is it possible for yields to consistently be so high though? It’s because REITs are required by law to redistribute at least 90% of their taxable income each year i.e. pay it out in dividends.
Many investors like REITs for the (more or less) steady recurring income, similar to how bonds pay out coupons consistently.
But don’t ignore the fact that the share price of a REIT can go up and down, just like regular stocks. A REIT’s share price might fall even as it continues to pay out big fat dividends. Some investors don’t mind the trade-off, but just be aware because you never know when you might need to sell off the REIT.
How do you choose a REIT?
The key is to find one that is well-managed and is able to ensure a consistent stream of income. Don’t just go for those with higher reported yields, but take the time to read the REIT’s prospectus and see if it fits with your risk appetite and how long you intend to remain invested.
A good place to start doing proper research into REITs is through SGX StockFacts. Filter “Industry” to “Real Estate Investment Trusts (REITs)” and you can see some key stats from each listed company. If you want to see anything other than the default stats, you can customise your display and select a different set of data points.
This is a good way to see, at a glance, which REITs have the highest yield, which gives you an idea of how much in dividends you can hope to get. But there’s no point buying a REIT that goes down in flames in the near future, so you also need to check for indications of its stability.
One such indicator is the debt-to-equity ratio (D/E). If the company has a lot of debts to repay, it would be in financial trouble if there’s a downturn – it might need to liquidate its assets or even go bust. To reduce your risk, select a REIT with a healthy D/E ratio below 60%.
As with any sort of investing, you stand to gain more if you invest in the company before every Tom, Dick and Harry goes ga-ga over it.
Look for undervalued REITs by checking the price-to-book-value ratio (P/BV), which shows the closing price of a stock divided by its quarterly book value. A P/BV ratio of less than 1 could indicate potential for growth, although you’d need to do the research to confirm this is indeed the case.
Finally, because of the nature of the various property markets, some REITs might be more resilient to changes in the economy and some might be less so. The current industrial property market, for example, might see a drop in rental prices in order to retain as many tenants as they can in a slower economy. This will probably lead to a drop in income, and dividends may not be paid out if the REIT reports an operating loss.
Top Singapore REITs in 2018
Here’s a snapshot of the most popular REITs in Singapore, ranked by yield (best to worst). The data is from SGX StockFacts and is valid as of 28 May 2018:
|Starhill Global REIT||$0.69||6.77%||56.3%||0.743|
|Ascott Residence Trust||$1.13||6.27%||59.18%||0.801|
|Mapletree Commercial Trust||$1.58||5.69%||54.42%||1.069|
|Frasers Centrepoint Trust||$2.20||5.54%||42.97%||1.075|
|CapitaLand Mall Trust||$2.11||5.34%||44.66%||1.073|
With an impressive yield of 8.4% last year, this industrial property-focused REIT has obviously caught the eye of investors despite its high D/E ratio which indicates higher risk. It specialises in industries like marine, oil & gas, manufacturing, electronics and R&D. Key properties in its portfolio include Solaris at One-North, Eightrium at Changi Business Park and Tuas Connection.
Current Soilbuild REIT share price: $0.66
Another industrial REIT with promising stats is the Shariah law-compliant Sabana REIT, which manages a number of standalone industrial buildings all over the island. Apart from SGX, it’s also listed on MSCI index and the FTSE index. It seemingly had a troubled 2017, but there’s a new CEO at the helm this year promising to turn things around.
Current Sabana REIT share price: $0.44
Starhill Global REIT
Starhill Global’s best-known properties are Wisma Atria and Ngee Ann City on Orchard Road, but the Singapore-based company also manages retail and commercial properties in KL, Tokyo, Chengdu, Adelaide and Perth. Note the relatively low D/E and P/BV ratios.
Current Starhill REIT share price: $0.69
If you want to invest in Asia’s growing healthcare sector, consider Singapore’s first healthcare real estate investment trust First REIT. It manages a large portfolio of hospitals and healthcare-related buildings in Indonesia, with a couple of properties in Singapore and South Korea.
Current First REIT share price: $1.36
Part of the real estate behemoth that is CapitaLand, Ascott Residence Trust focuses on hotels and serviced residences, mainly properties under the Ascott, Somerset and Citadines hospitality chains. Although hospitality might be a volatile sector due to the short term nature of its tenants (guests), Ascott REIT has properties in 14 countries, which spreads out the risk.
Ascott REIT share price: $1.13
Singapore’s largest listed business/industrial REIT absolutely dominates the business park scene with over 100 properties here, plus 30+ in Australia. Key names in its portfolio as Science Park, One-North and Changi Business Park. The interesting thing about Ascendas’ size is that it also means many, many tenants including big players like Singtel – therefore it’s not dependent on just a few core tenants.
Ascendas REIT share price: $2.65
Mapletree Commercial Trust
Business, retail and commercial property REIT Mapletree Commercial Trust should ring a bell as they manage five major developments in the CBD and Harbourfront. These include VivoCity, Mapletree Business City, Mapletree Anson, PSA Building and Bank of America Merrill Lynch Harbourfront.
Mapletree Commercial Trust share price: $1.58
Everyone knows about Suntec City, the namesake property of Suntec REIT, but Suntec REIT also has a large share in other large complexes like One Raffles Quay and Marina Bay Financial Centre, plus commercial buildings in Melbourne and Sydney.
Suntec REIT share price: $1.77
Everyone’s favourite newspaper publisher SPH has a REIT subsidiary that manages two buildings, Paragon and the Clementi Mall. Note that its D/E ratio is extraordinarily low, meaning it is financially stable and should have plenty of room to grow.
SPH REIT share price: $0.99
Frasers Centrepoint Trust
Frasers Centrepoint is a well-known REIT that manages a portfolio of 6 retail properties in the heartlands: Causeway Point, Northpoint City, Changi City Point, Yewtee Point, Anchorpoint and Bedok Point. It falls under the umbrella group Frasers Property, which has a variety of property assets ranging from condos to hotels to business parks all over the world.
Frasers Centrepoint Trust share price: $2.20
CapitaLand Mall Trust
As the very first REIT to be listed on SGX in 2002, CapitaLand Mall Trust is still doing well after all these years, and dominates the retail sector – just go to any CapitaMall and you’ll see why. They manage the lion’s share of shopping malls all over Singapore, including Plaza Singapura, Tampines Mall, Raffles City, IMM, Junction 8 and JCube.
Plus they also own part of CapitaLand Retail China Trust, a China shopping mall REIT for those looking to capitalise on Mainlanders’ appetite for retail.
CapitaLand Mall Trust share price: $2.11
Another giant in the Singapore REITs scene is Keppel REIT, which has been listed on SGX since 2006 and manages mainly premium office buildings like Ocean Financial Centre, Marina Bay Financial Centre, One Raffles Quay, and similar business developments in Australia. However, note that it has been underperforming compared to the others on this list.
Keppel REIT share price: $1.18
How can you start investing in REITs?
Don’t be too intimidated by the big names and data points. Investing in REITs is fairly simple and low risk (as long as you do your due diligence) – it’s a relatively passive sort of investment as you won’t have to monitor the stock market every day.
REITs are fairly affordable and good for beginner investors who may not have that much cash on hand to invest. That said, because of the high commission rates charged by brokerage companies, one should at least be able to commit $10,000 before considering investing in REITs.
What are your thoughts on investing in REITs? Share them with us.
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