This article will discuss real estate investment trusts (REITS) in Singapore.
For any questions, or if you are looking to invest, then you can contact me using this form, use the WhatsApp function below or email (advice@adamfayed.com).
REITs:
A ‘REIT’, which is short for ‘Real Estate Investment Trust’ is a company that generally owns/operates/finances properties that are known to provide profits.
REITs usually generate steady profits for investors. however, they are not as beneficial as other forms of investments such as stocks, which have more capital appreciation.
Similar to the stocks, REITs are also publicly traded making them have a higher amount of liquidity.
REITs invest in many types of properties such as apartments, hotels, medical facilities, retail centers, warehouses, data centers, cell towers, etc.
Singapore REIT:
Singapore Real Estate Investment Trusts, which are also known as ‘S-REITs’ or ‘Singapore REITs’, are the REITs that are in Singapore.
Singapore REITs pool the money collected from the investors and use it to own, invest, or operate in the real estate properties located in Singapore.
Thereafter, the properties obtained by the Singapore REITs are leased out to tenants for obtaining a profit. Investors that invest in REITs are generally the co-owners of REITs.
These investors are allowed to earn the rental income from the properties in which their investment has been used. The term used to describe the profits earned from the investments made in REITs is ‘Distribution Yield’.
Along with the distribution yields, investors could also profit from the capital gains if the value of the property increases. REITs might be known by the people in most parts of the world, but the people living in Singapore are quite familiar with REITs.
Terminology:
Distribution Per Unit (DPU) – Distribution Per Unit lets the investor have an idea about how much dividend is obtained by them based on the units of REITs they own.
DPU is calculated as total distribution divided by the number of shares.
Net Asset Value (NAV) – Net Asset Value is the representative value that a customer can get when a REIT gets liquidated of all its assets and clears the liabilities.
NAV per share is calculated as the market value of the assets minus the value of liabilities divided by the number of shares.
Revalued Net Asset Value (RNAV) – it is nothing but the net asset value, where the assets as well as liabilities are adjusted in order to reflect the current market values.
RNAV per share is calculated as the revised market value of the assets minus the revised value of liabilities divided by the number of shares
Gearing – Gearing is the term used to access the financial leverage of a REIT. Companies with high gearing are most highly unsafe during times of a recession as interest has to be paid to the investors regardless of the situation.
In case a REIT fails to pay the investor (wither principal or interest) in time, it might have to fold up. From the year 2015, the Monetary Authority of Singapore (MAS) has levied a gearing limit of 45% for all the REITs in Singapore.
The gearing ratio (debt ratio) is calculated as total debt divided by total assets.
Average Interest Rate – the average interest of a REIT is used to determine the expensiveness of a loan from a bank that the respective REIT borrows money from.
if the interest rate is higher, then the debt funding of the REIT is said to be more expensive.
It is estimated that Ascendas India Trust is known to have a high average interest rate as the interest rates in India are higher compared to most other countries.
Weighted Average Debt Maturity (WADM) – REITs are required to invest in properties intensively (in terms of capital). The debts of a REIT have their own tenure and maturity dates.
REITs usually roll over these debts when each existing debt getting matured. However, this process involves risk as the interest rate might be higher or some of the terms of the debt might be more difficult or require effort.
Adding to that, REITs might not be able to borrow the amount they actually intended to borrow.
This WADM presents an idea to the investor indicating the remaining debt. It is represented in years. Generally, a longer WADM is better than a shorter WADM as a huge amount of loans could be settled over the time period.
Weighted Lease Average Expiry (WALE) – Weighted Lease Average Expiry is the term used to represent the likelihood of REITs’ property portfolio getting vacant.
As we are already familiar with the aspect that a REIT generates income by leasing out properties. Therefore, occupancy will impact a REIT’s earnings and will result in a distribution loss.
Rental Reversion – Rental Reversion is used to calculate the changes in rental rates when an expiring lease gets renewed.
A positive rental reversion rate is beneficial for a REIT because it represents that new tenants are willing to higher rents compared to the existing rates.
Similar to this, negative rental reversion rates indicate oversupply or lack of demand in the rental markets.
Net Property Income (NPI) – This can be measured by deducting the maintenance costs, taxes, and operating expenses from the gross revenue of a REIT. It is considered one of the best methods to identify the performance of a REIT.
Capitalization Rate or Property Yield – The income yielding capability of a property is known as the Capitalization.
It is calculated by dividing the net operating income and property value.
Occupancy Rate – The occupancy rate measures the proportion of the lettable area, which is currently occupied by a tenant.
100% occupancy rate of a REIT means that the tenant has occupied the whole property and there is no more room for new tenants.
A lower occupancy rate indicates a less preferred location or lack of demand by a tenant.
Asset Enhancement Initiatives (AEI) – Asset Enhancement Initiatives include Refurbishment, Revamp, and upgrades required for a property.
The main objective of AEIs is to increase the value of a REIT’s asset value in order to optimize the rental income. This is a common thing to be observed in Singapore, especially when it comes to shopping malls.
Advantages and Disadvantages of REITs:
Most investors opt for buying REITs rather than opting for buying physical properties. Let us have a look at the pros and cons of REITs in contrast to physical properties.
Pros:
- People can get access to a higher amount of liquidity with the help of REITs. They can easily buy or sell REITs as REITs are traded similar to the stocks on the stock exchange.
On the contrary, people who own property might find it hard to sell or buy their property as it requires a lot of time and effort.
- REITs require an amount as low as a few hundred from the people to get started. Whereas, investing in physical properties might require hundreds or thousands of dollars.
- People who own a physical property would have to deal with the issues and maintenance of their property. Moreover, they are also required to deal with the tenants by themselves.
However, in the case of REITs, a person can be relieved of all these hassles. The property managers take care of the tenants and the maintenance as well.
- It is relatively easy for a person to buy a residential property, whereas, investing in commercial properties might require experience and expertise in that specific area.
People who invest in commercial properties generally invest in office, retail, and industrial properties. Adding to that, buying certain properties might be very hard as they require a hefty sum of money.
REITs, on the other hand, will let an investor invest in not only shopping malls, but other types of expensive properties such as hospitals and office buildings as well.
Cons:
- As REITs are traded on stock exchanges like stocks, the price fluctuations are laid open to the market volatility. Physical properties do not involve such fluctuations as they aren’t traded in this way.
- Even though the managers handle everything on an investor’s behalf, they charge management fees for the services offered. This would generally take a bite in the profits gained.
Management fees are not only based on the value of the assets, but they are also applicable when a REIT owns property or disposes of it.
- REITs may only borrow up to 45% of a specific asset unlike a physical property, where a person can get a 60% – 80% loan to valuation ratio.
The management fees and the lower leverage won’t let a traditional REIT be able to beat the returns offered from property investment. However, it is a noteworthy point that the higher leverage involved in property investments makes them risky.
Any wrong step made by an investor while investing in a property can lead to serious damage to that specific person’s wealth.
Considering everything, REITs can be an easy investment option that involves a lower amount of risk. They also grant access to achieve a broad exposure to diversified portfolios of properties.
Types of REITs:
Coming to the types of REITs, there are:
- Retail REITs
- Office REITs
- Residential REITs
- Hospitality REITs
- Industrial REITs
- Healthcare REITs
Now, let us have a detailed look at each of these REITs individually in order to get a better idea.
- Retail REITs
Probably, most of the shopping malls that people generally visit are owned by a retail REIT.
Therefore, if you wish to make an investment in Retail REITs, you should evaluate the overall performance of the retail industry as it is the key factor to know about your future profits.
You should also pay attention to the fact that REITs generate profits by renting the property to the tenants. If any of the tenants were to face issues with the cash flow, they might find it difficult to pay the rent on time.
In some cases, there is even a possibility that the tenants might not be able to make a payment. In such situations, a REIT would have to find a replacement as quickly as possible, and this might not be possible sometimes.
Therefore, while you make an investment in retail REITs, make sure that you choose a REIT that has a stable tenant. Along with making an analysis of the retail industry, you should also analyze the REIT.
It is recommended that you choose a REIT with strong balance sheets, durable profits, and a low amount of debt.
During troubled economic situations, retail REITs that have capital (which is handy) are able to buy real estate at lower prices. You should take advantage of this situation if you are a retail investor.
- Office REITs
Office REITs are the type of REITs that concentrate on the building used for offices. The income generated by Office REITs is obtained from the rents of an office.
One of the major advantages that Office REITs have is that they tend to deal with leases in the long-term. If want to make an investment in Office REITs, here are some things that you might need to consider.
- Economic situation.
- Current unemployment rate.
- Job vacancies.
- The economic situation of the particular area in which the REIT has made an investment.
- The capital which is available for making an investment by the REIT.
- Office REITs are also observed as a sub-group of Industrial REITs.
- Residential REITs
Residential REITs are the type of REITs that invest in properties such as housing, rental apartments, rental buildings, etc.
While you make an analysis of Residential REITs, you should find out that how many affordable homes are available in the specific area where the investment is made by the respective REIT.
If the home affordability is low, the number of people who are forced to rent will be high leading to an increase in the prices of rents. This is why most Residential REITs concentrate on highly developed urban areas.
Some other factors that should be considered are the population of that area and the job opportunities available. Cities that have a considerable amount of growth in the economy will attract people from other places while increasing the demand for rental properties.
Places having lower availability of homes along with having higher rents are the best suitable conditions for residential REITs.
- Hospitality REITs
As the name suggests, the REITs that invest in properties belonging to the hospitality sector like hotels, service apartments, short-term lodging properties, or other accommodation providing facilities.
Even though it sounds attractive to be able to invest in hotels with the help of hospitality REITs, there are some major aspects that are needed to be taken into consideration.
First of all, you would have to know about the overall performance of the hospitality sector.
In case the economy is poor, the hospitality sector is anticipated to deal with lower sales and lower occupancies, specifically the hotels that are specialized for tourism purposes.
It is even better if you are able to have a look at the properties that are owned by a hospitality REIT and make an analysis of its occupancy rate on average. As the properties of hospitality REITs are based on short-term stays and leases, the overall performance can be highly volatile and be easily affected by economic movements.
- Industrial REITs
Industrial REITs usually manage or own industrial properties, which are provided to tenants for rent. Some examples of the properties in which industrial REITs make an investment are warehouses, distribution centers, and specialized facilities.
It is important for you to consider these spaces and facilities owned by the REITs and make sure you gain some information about the industries or companies that are renting these spaces.
It should also be duly noted that each facility holds a massive space and when a tenant is lost, it may be presented as a major difficulty for the industrial REIT, especially for the ones having little assets.
Industrial REITs usually have short-term leases and leases ranging for 30 years are typical. In such conditions, the value of the property will depreciate at a faster pace and the investors are compensated with a higher amount of yields.
- Healthcare REITs
Healthcare REITs make an investment in different types of medical facilities like hospitals, nursing homes, retirement facilities, and medical centers. The performance of healthcare REITs is based on the advancement of the healthcare system.
While making an investment in healthcare REITs, you should look for a diversified group of clients and the availability of a wide range of properties. You should also make sure that the REITs chosen by you have a considerable amount of experience.
REIT ETFs:
Along with the option of stocks, investors are also able to choose from individual REITs or a basket of REITs by making use of ETFs and make an investment in them.
ETFs are passive funds that try to obtain results by matching the performance of their underlying indices. There is an availability of 3 REIT ETFs that are listed on the Singapore Exchange (SGX) for the investors to choose from, they are ‘Lion-Phillip S-REIT ETF’, ‘NikkoAM-Straits Trading Asia Ex-Japan REIT ETF’, and ‘Phillip SGX APAC Dividend Leaders REIT ETF’.
Robo-advisor REIT Portfolio:
Syfe, which is a licensed Robo-advisor, has launched a REIT portfolio that allows the investors to conveniently make an investment with advanced risk management.
Syfe REIT+ portfolio invests between REITs listed in Singapore and Government Bonds in Singapore. The allocation of the assets between the REITs and the bonds is based on the current market conditions.
This is carried out at Syfe, without needing any sort of active involvement from the investor.
The representative yield of dividends is 4.9%, while the investor can either choose to get paid in cash on a quarterly basis or reinvest the obtained yield automatically.
Moreover, there is no requirement for a minimum amount of investment and the investor can either invest the money once or invest on a monthly basis.
The annual fees charged by Syfe for the services they offer is 0.40% to 0.65%, which differs depending on the amount that has been invested.
How to invest:
As said earlier, REITs are similar to stocks and are traded on the stock market. Therefore, you just need to have an online brokerage account for buying the REIT you want.
One of the best things about making an investment in REITs is that there is no requirement for a huge amount of capital and investors are offered access to a broad exposure on the property market.
However, unlike the traditional stocks, REITs also have an added benefit of tax transparency.
This is because Singapore REITs are needed to pay at least 90% of the income (that is taxable) to the unitholders in the same year as the income obtained.
Having such frequent and higher payouts make Singapore REITs stand out as the best and lucrative form of investment. These are highly beneficial for the investors that are looking for a stable and regular source of income.
Aspects to consider while selecting the best Singapore REIT:
There are some important aspects that you should consider before selecting a Singapore REIT to make an investment. These are listed below:
- The growth in the gross revenue as well as net property income of the REIT.
- Growth in distribution per Unit.
- Property yield should be ranging between 5% and 9%.
- Gearing Ratio should be lower than 40%.
- Interest coverage ratio should be around 5 times.
- Well performing portfolio occupancy rate.
- Positive rental reversions.
- Growth aspects.
- Nice price-to-book ratio.
- The distribution yield should be more than 5%.
REIT fees:
REIT Manager – REIT managers are similar to fund managers, who make all the necessary decisions on the behalf of the investors.
The base fee of REIT managers ranges between 0.25% to 0.5% p.a. depending on the deposited property.
The performance fee ranges between 3% – 4% of the overall profitable income.
Whereas, the acquisition fees are around 1% of the property value and divestment fees are around 0.5% of the property value respectively.
Property Manager – The property manager is similar to a facilities manager, who maintains and operates the property.
Property managers usually charge 2% to 3% of the gross revenue and/or 2% to 3% of the overall property income or commissions earned by giving on a lease.
Trustee – Generally, this role is carried out by a bank and it is important as banks act as independent parties to the REIT managers, checks, and balances, especially when it comes to managing the investor’s funds.
The general fees of a trustee are around 0.01% to 0.1% of the total assets or the deposited property.
Current situation (Covid-19):
Singapore REITs not only survived the impact of the coronavirus pandemic situation, but they are also set to have a recovery.
Most people doubted whether the Singapore REITs could perform well amidst the COVID-19 situation, but leaving everyone in surprise, they have performed very well in terms of share price as well as other types of valuations.
The overall performance of the Singapore REITs had a fall during the first quarter, however, the performance of most of the REITs recovered during the second quarter.
The overall judgment is that Singapore still remains one of the best available options for investors to make an investment in REITs.
Moreover, it has been estimated that this sector (started in 2002) has had a considerable amount of growth when compared to most other countries of Asia.
List of REITs in Singapore:
Given below is a list of REITs in Singapore, based on their market cap. Along with that, we have provided their respective type and geography.
| Market Cap | Type | Geography | |
| Ascendas REIT | $12,012.4 million | Industrial | Singapore, Australia, and the UK |
| Mapletree Logistics Trust | $7,562.5 million | Industrial, Logistics | Singapore, and Asia |
| Mapletree Industrial Trust | $6,515 million | Industrial | Singapore and the US |
| Frasers Logistics & Industrial Trust | $3,008.6 million | Industrial | Australia, Germany, and the Netherlands |
| ESR-REIT | $1,903 million | Industrial | Singapore |
| AIMS APAC REIT | $1,027 million | Industrial | Singapore and Australia |
| Cache Logistics Trust | $767.6 million | Industrial | Singapore, Australia, and China |
| Soilbuild Business Space REIT | $644.6 million | Industrial | Singapore and Australia |
| Sabana Shari’ah Compliant Industrial REIT | $484.4 million | Industrial | Singapore |
| CapitaLand Mall Trust | $9,332.7 million | Retail | Singapore |
| CapitaLand Commercial Trust | $7,871.9 million | Commercial, Retail | Singapore |
| Suntec REIT | $5,116.3 million | Commercial, Retail | Singapore and Australia |
| Frasers Centrepoint Trust | $3,375.5 million | Retail | Singapore |
| Mapletree North Asia Commercial Trust | $3,769 million | Commercial, Retail | China, Hong Kong, and Japan |
| SPH REIT | $2,950.2 million | Retail | Singapore and Australia |
| Ascendas India Trust | $2,061 million | Commercial, Retail | India |
| CapitaLand Retail China Trust | $1,837.8 million | Retail | China |
| Starhill Global REIT | $1,552.7 million | Commercial, Retail | Singapore, Australia, Malaysia, and Japan |
| Sasseur REIT | $963.2 million | Retail | China |
| Lippo Malls Indonesia Retail Trust | $651.4 million | Retail | Indonesia |
| Dasin Retail Trust | $533.8 million | Retail | China |
| BHG Retail Trust | $340.7 million | Retail | China |
| Lendlease Global REIT | NA | Commercial, Retail | Singapore and Italy |
| CapitaLand Commercial Trust | $8,024 million | Commercial | Singapore and Germany |
| Keppel REIT | $4,328.5 million | Commercial | Singapore, Australia, and South Korea |
| OUE Commercial REIT | $2,804.1 million | Commercial | Singapore and China |
| Manulife US REIT | $1,631.4 million | Commercial | US |
| Frasers Commercial Trust | $1,604.1 million | Commercial | Singapore, Australia, and the UK |
| Cromwell European REIT | $1,490.5 million | Commercial | Europe |
| Prime US REIT | $962 million | Commercial | US |
| IREIT Global | $551.2 million | Commercial | Germany |
| Elite Commercial REIT | NA | Commercial | UK |
| Keppel DC REIT | $4,130.9 million | Data Centers | Worldwide |
| Ascott Residence Trust | $3,977.2 million | Hospitality | Singapore and Asia |
| Parkway Life REIT | $2,262.7 million | Healthcare | Singapore, Japan, and Malaysia |
| CDL Hospitality Trust | $1,844.5 million | Hospitality | Worldwide |
| Frasers Hospitality Trust | $1,336.8 million | Hospitality | Worldwide |
| Far East Hospitality Trust | $1,313.4 million | Hospitality | Singapore |
| First REIT | $800 million | Healthcare | Singapore, Indonesia, and South Korea |
| EC World REIT | $592.9 million | Logistics | China |
| ARA Hospitality Trust | $487.6 million | Hospitality | US |
| Eagle Hospitality Trust | $461.6 million | Hospitality | US |
Popular REITs in Singapore:
As we have known about the REITs that are available in Singapore, let us now take a look at some of the popular REITs in Singapore (as of 28th October 2020).
- Dasin Retail Trust
Share Price – S$0.78
Dividend Yield – 6.29%
- Lippo Malls Indonesia Retail Trust
Share Price – S$0.084
Dividend Yield – 15.24%
- EC World REIT
Share Price – S$0.69
Dividend Yield – 8.03%
- Sasseur REIT
Share Price – S$0.76
Dividend Yield – 7.91%
- Cache Logistics Trust
Share Price – S$0.61
Dividend Yield – 7.35%
- BHG Retail REIT
Share Price – $0.55
Dividend Yield – 4.87%
- Eagle Hospitality Trust
Share Price – S$0.67 (March 2020)
Dividend Yield – 6.56 (March 2020)
- IREIT
Share Price – S$0.60
Dividend Yield – 8.32%
- Frasers Hospitality Trust
Share Price – S$0.40
Dividend Yield – 5.88%
- ESR-REIT
Share Price – $0.36
Dividend Yield – 7.43%
Bottom Line:
The current COVID-19 pandemic situation has brought a good opportunity for the investors to consider making an investment in REITs (especially long-term).
In order to make an investment in REITs, you would have to open an individual CDP account and start setting up a trading account with any of the brokerage firms you like. It is even possible to do both tasks mentioned above with some brokers.
We have also made an article on the best Singapore online brokerages, which might be helpful to get an idea about the topmost brokerages available.
In order to get more information or further guidance on this topic, you can contact us and benefit from the expert financial services offered by us.
That being said, we hope that you were able to find the relevant information in this article, for which you have been searching for. We wish for you to have a bright financial career while getting great profits from all your assets.
