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REITs average 7.7% total return in 2014 YTD

Real Estate Investment Trusts (REITs) are a well-established asset class that combine the liquidity and accessibility of stock market investing with the stability and physicality of real estate.

The 26 Real Estate Investment Trusts (REITs) listed on Singapore Exchange (SGX) provide a diverse mix of local and international property assets that house industrial, commercial, retail, residential and specialised tenants. These 26 REITs have averaged a total return of 7.7% in the year-to-date, with the median return at 7.1%. Total returns take both price moves and dividend distributions into account.

The objective of a REIT is to raise capital to purchase real estate assets and generate income for investors. There have been three REITs listed on SGX over the past 12 months – SPH REIT, Soilbuild Business Space REIT and OUE Commercial REIT.

REITs distribute at least 90% of their cash flow income to investors in return for tax concessions from the Singapore government. The current average indicative yield of the 26 REITs is 6.4% – this implies that an investment of S$5,000 would be expected to pay S$320 over a 12 month period. Some REIT dividends have been paid every three months, some have been paid every six months.

Aside from understanding the distribution process for REIT income, investors are encouraged to learn more about the business and comparative aspects of REITs as an asset class. As a starting base, investors can refer to the MoneySENSE checklist that is outlined below.

Comparing the 26 REITs, the three REITs categorised as ‘diversified’ by the Global Industry Classification Standard (GICs) averaged the highest indicative yields, followed by the seven REITs deemed by GICs to be investing in industrial-related properties. Together these 10 REITs include the five REITs with the highest indicative dividend yields as of the Friday close.

Of these 26 REITs, 24 have generated gains in the first 19 weeks of 2014 on a price and dividend basis. The REITs that generated the highest gains were Suntec REIT (SGX: T82U), Mapletree Industrial Trust (SGX:ME8U), Mapletree Commercial Trust (SGX:N2IU), and CapitaCommercial Trust (SGX:C61U). Yields and year to date performances of the 26 REITs are detailed in the table below.

REIT SGX Code MKT CAP in S$bn Last Price Ind Div Yield Total Return YTD Total Return 12M GICS Sub-industry name
CAPITAMALL TRUST C38U

6.96

2.01

5.1

8.4

-9.5

Retail REITs
ASCENDAS REAL ESTATE INV TRT A17U

5.67

2.36

6.0

10.7

-9.3

Industrial REITs
CAPITACOMMERCIAL TRUST C61U

4.63

1.61

5.1

13.9

-0.5

Office REITs
SUNTEC REIT T82U

4.36

1.75

6.6

17.0

-1.3

Diversified REITs
KEPPEL REIT K71U

3.45

1.23

6.4

7.3

-12.0

Office REITs
MAPLETREE LOGISTICS TRUST M44U

2.78

1.14

6.7

11.4

-9.4

Industrial REITs
MAPLETREE COMMERCIAL TRUST N2IU

2.76

1.33

5.9

14.9

-5.0

Retail REITs
MAPLETREE INDUSTRIAL TRUST ME8U

2.50

1.48

6.8

15.0

2.0

Industrial REITs
SPH REIT SK6U

2.50

1.00

5.6

4.9

14.2*

Retail REITs
MAPLETREE GREATER CHINA COMM RW0U

2.31

0.86

7.2

6.2

-19.0

Diversified REITs
FORTUNE REIT F25U

1.90

6.33

5.7

4.6

-16.8

Retail REITs
ASCOTT RESIDENCE TRUST A68U

1.83

1.20

6.2

2.2

-7.1

Residential REITs
STARHILL GLOBAL REIT P40U

1.75

0.82

6.1

7.1

-8.0

Retail REITs
FRASERS CENTREPOINT TRUST J69U

1.51

1.83

6.3

6.9

-12.6

Retail REITs
PARKWAYLIFE REAL ESTATE C2PU

1.45

2.40

4.7

4.6

-7.4

Health Care REITs
CAPITARETAIL CHINA TRUST AU8U

1.20

1.47

5.9

13.8

-9.8

Retail REITs
LIPPO MALLS INDONESIA RETAIL D5IU

0.98

0.40

6.8

-0.6

-24.1

Retail REITs
CACHE LOGISTICS TRUST K2LU

0.93

1.19

7.2

10.8

-9.8

Industrial REITs
CAMBRIDGE INDUSTRIAL TRUST J91U

0.92

0.74

6.8

11.0

-5.5

Industrial REITs
AIMS AMP CAPITAL INDUSTRIAL O5RU

0.88

1.42

7.1

4.4

-16.5

Industrial REITs
FRASERS COMMERCIAL TRUST ND8U

0.86

1.29

6.4

4.5

-10.7

Office REITs
FIRST REAL ESTATE INVT TRUST AW9U

0.83

1.16

6.9

13.5

-12.9

Health Care REITs
SABANA SHARIAH COMP IND REIT M1GU

0.72

1.05

7.2

0.6

-15.8

Industrial REITs
OUE COMMERCIAL REAL ESTATE TS0U

0.69

0.80

N/A

-0.6*

-0.6*

Office REITs
SOILBUILD BUSINESS SPACE REIT SV3U

0.63

0.78

8.1

4.7

4.4*

Diversified REITs
SAIZEN REIT T8JU

0.26

0.92

7.1

2.5

0.2

Residential REITs

Source: Bloomberg (data as of 9 May 20140) – note: Fortune REIT traded in HKD, indicative dividend yield of OUE Hospitality REIT based on distributions since IPO, Suntec  REIT yield based on 12M dividend history. * Performance from IPO price

REITs – Investor Checklist

Investors can use the following framework of questions to understand more about the properties, management and risks of a REIIT.

1. What does the REIT invest in?

Do not assume that all REITs come with low risks and are intended for long term investing. Read the prospectus and research reports to understand these key areas:

  • the sector and geography factor (in particular the stage of property cycle in the assets’ home countries, the economic outlook for that country, any political or regulatory risk, any tax considerations); and
  • the underlying assets (in particular the asset quality, such as branding of a shopping mall, occupancy rate and the tenant mix).

  2.             How is the REIT structured?

Read the “Investment Approach” and “Risks” portions of the prospectus for information on the various risks of the specific REIT you intend to invest in. Note that the risk elements may differ greatly between REITs depending on their structure.

Do also find out:

  • Who are the people managing the underlying assets? For example, the management quality, such as its reputation and track record, its strategy for growth.
  • If there is a sponsor, who is the sponsor and what is the strength of the sponsor?
  • What are the expected fees (i.e. brokerage commission, management fees, trustees’ fees & expense ratio)?
  • What is the gearing (leverage) and debt maturity of the REIT?
  • Are there unique features of the specific REIT which may give rise to additional risk?

  3.             What is the dividend distribution policy?

Find out:

  • What is the expected frequency and timing of dividend payment?
  • What are the adjustments made to income in determining the amount to be distributed?
  • What are the circumstances under which a REIT may not pay dividends, e.g. an operating loss, downward revaluation of properties, or insufficient cashflow?

4.             Does the REIT’s structure and risk profile suit your risk appetite and investment time horizon?

  5.             How does the REIT you are considering compare with other investment options?

Last but not least, if you find that you do not understand the REIT or are not comfortable with its structure and risks, do not invest in it.

Note the above table includes the REITs that are governed by the collective investment scheme, thus it does not include stapled trusts. The largest capitalised stapled security is CDL Hospitality Trust which has generated a total return of 8.6% over the first 19 weeks of 2014 and maintains an indicative dividend yield of 6.4%. SGX lists another four stapled trusts – Ascendas Hospitality Trust, Far East Hospitality Trust, OUE Hospitality Trust and Viva Industrial Trust.

Recent REIT listings

Over the past 12 months, three REITs have listed on SGX – SPH REIT (SGX: SK6U), Soilbuild Business Space REIT (SGX:SV3U), and OUE Commercial REIT (SGX:TS0U). The average total return of these three REITs from their respective initial offer price is 6.0%.

SPH REIT

Listed on SGX on 24 July 2013, SPH REIT is a Singapore-based REIT established principally to invest, directly or indirectly, in a portfolio of income-producing real estate which is used primarily for retail purposes in Asia-Pacific, as well as real estate-related assets. The initial asset portfolio of SPH REIT comprises Paragon, a retail mall and medical suite/office property located in Orchard Road and Clementi Mall, a suburban mall located in the center of Clementi town located in the west of Singapore. Since its IPO last year, SPH REIT generated a total return gain of 14.2%.

Soilbuild Business Space REIT

Listed on SGX on 16 August 2013, Soilbuild Business Space REIT is a Singapore real estate investment trust established with the principal investment strategy of investing on a long-term basis, directly or indirectly, in a portfolio of income-producing real estate used primarily for business space purposes in Singapore as well as real estate-related assets. Since its IPO last year, Soilbuild Business Space REIT generated a total return gain of 4.9%.

  OUE Commercial REIT

OUE Commercial REIT (OUE C-REIT) listed on 27 January 2014. OUE C-REIT was established with the principal investment strategy of investing, directly or indirectly, in a portfolio of income-producing real estate used primarily for commercial purposes (including real estate used primarily for office and/or retail purposes) in financial and business hubs within and outside of Singapore, as well as real estate-related assets The initial portfolio of OUE C-REIT is comprised of two commercial properties strategically located in Singapore and Shanghai: the OUE Bayfront Property  and the Lippo Plaza Property  in the commercial district of Huangpu in central Shanghai. OUE C-REIT closed on Friday -0.6% lower than the initial offer price.

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