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How to Choose the Right REITs for You

The next best thing from being a property owner yourself, is to own real estate investment trusts, or REITs. Being an owner of a REIT confers you partial ownership to all the real estate that it owns, which can be high-tech industrial facilities, residential apartments, hotels, shopping malls, swanky office buildings, or even hospitals.

But, not every REIT’s created equal, so how should you choose a REIT? Here are some important criteria to think about.

1. A REIT’s yield

One of the main attractions of owning units of a REIT stems from its high dividend yield (technically called “distributions”). To be a REIT, it is under the obligation to distribute at least 90% of its distributable income, which generally leads to a high yield for investors compared to the rest of the market.

For instance, some of the biggest REITs in Singapore, such as CapitaMall Trust (SGX: C38U), Ascendas Real Estate Investment Trust (SGX: A17U), and CapitaCommercial Trust (SGX: C61U), all have yields that are much higher than the market average as represented by the Straits Times Index (SGX: ^STI).


Trailing Yield

Market Capitalisation

CapitaMall Trust


S$6.52 billion

Ascendas REIT


S$5.24 billion

CapitaCommercial Trust


S$4.25 billion

Straits Times Index


Source: S&P Capital IQ; SPDR Straits Times Index ETF website

But, even though the three giant REITs have significantly higher yields than the market average, there can be a wide spectrum of yields available among different REITs. As an example, the much smaller Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, with a market cap of only S$702 million, has a trailing yield of 9.2%.

2. A REIT’s assets

Under a broad brush, REITs can be said to property plays as their intrinsic value is intimately tethered to the value of the properties they own and the rents that these properties can command. However, as I’d mentioned earlier, different REITs can own significantly different types of properties. As such, it’s important to be aware that there are different factors that can affect the value of each REIT.

For example, the fluctuation of the Indonesian rupiah and the attractiveness and affordability of the country’s healthcare facilities for both its citizens and visitors can be very important for First Real Estate Investment Trust’s (SGX: AW9U) performance given that the bulk of its properties are healthcare facilities located in Indonesia.

On the other hand, those factors would have almost no bearing on how Ascott Residence Trust’s portfolio of serviced residences and rental housing – which are spread across 11 countries in Asia, Europe, and Australia – would perform. Ascott Residence Trust’s properties would likely be affected by the general economy of the countries it has operations in, in addition to the relative ease by which rental-seeking foreign employees can be employed in those countries.

3. A REIT’s gearing and debt-maturity profile

A REIT could be simply explained as an entity that borrows money at low interest rates to invest into properties that can fetch higher rates of return. Given the need for a REIT to distribute at least 90% of its distributable income each year, it’s tough for REITs to conserve cash to pay down its debts. As such, it’s important to keep an eye out for a REIT’s balance sheet to ensure that it’s not overextending itself.

An easy short-hand to monitor a REIT’s debts would be its gearing ratio, which can be simply calculated by dividing a REIT’s total borrowings with its total assets.

In Singapore’s context at least, REITs are subjected to a gearing limit of 35% and 60%. For the latter condition, a REIT must obtain and disclose a credit rating from a ratings agency such as Moody’s or Standard & Poor’s.

Within Singapore’s REITs, there is also a wide range of gearing ratios available. For instance, Viva Industrial Trust’s latest financials show it having a gearing ratio of 38.8% and that’s almost 45% higher than SPH REIT’s last-reported gearing of 26.7%. Investors must be comfortable with the financial risks they are taking on depending on the level of gearing each REIT has.

Lastly, a REIT’s debt-maturity profile is also important as a large chunk of debt coming due for repayment in a narrow space of time can make it very difficult for a REIT to refinance its borrowings if credit markets take an unexpected turn for the worse. An example of a REIT with a debt-maturity profile that’s well-spaced-out would be CapitaMall Trust and that can be seen from the table below:


Amount of borrowings due


S$500.0 million


S$799.5 million


S$648.8 million


S$250.0 million


S$505.2 million


S$157.6 million


S$226.0 million


S$412.0 million


S$190.1 million


S$140.0 million


S$150.0 million

Source: CapitaMall Trust’s Credit Suisse 17th Annual Asian Investment Conference presentation

Foolish Bottom Line

It’s easy to group REITs under one broad category and discuss them almost homogeneously. But, a closer look at each of them would reveal that there can be very important differences to consider for investors. As such, when looking at a REIT, it can pay for an investor to study its yield, assets, and balance sheet, before coming to an investment decision.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.