Real Estate Investment Trusts, or REITs, have come a long way since they were first introduced to Singapore’s share market in 2002. They have steadily grown in popularity and there are more than 20 listed REITs on the SGX today. Their importance is further highlighted by the inclusion of Capitamall Trust (SGX: C38U) and Ascendas Real Estate Investment Trust (SGX: A17U) to the Straits Times Index (SGX: ^STI).
Suffice to say, the dividend paying REITs now take up a significant portion of the SGX.
Is it all about dividends?
Investors interested in REITs are often drawn by the current dividend yield (technically called distribution yield) of the share. But let’s take a step further, and look at the breakdown of historical returns for some REITs.
To do that, here are two REITs which I have owned for more than five years (I did not buy either one during their respective IPOs). The table below shows their returns from share price appreciation and dividends.
|REIT||IPO Launch||Returns from share price appreciation*||Returns from dividends||Total returns**|
|Suntec Real Estate Investment Trust (SGX: T82U)||9 December 2004||76%||88.6%||164.6%|
|Mapletree Logistics Trust (SGX: M44U)||16 July 2005||67%||122.3%||189%|
* As of closing price on 12 August 2014 – units of Mapletree are adjusted for 3-for-4 rights issue in 2008
** Total returns calculated as sum of share price appreciation and dividends
Source: Company presentations; Google Finance; author’s calculations
As a whole, Suntec REIT has returned 164.6% since its IPO. Similarly, Mapletree Logistics has managed a 189% return starting from the day it got listed. What is more interesting though, is the contribution of the dividends to the total returns of both REITs. As of 12 August 2014, dividends made up more than half of the total returns for both Suntec REIT and Mapletree Logistics Trust over the last nine-plus years.
So, was it just dividends alone? There may be an overarching element yet.
Our familiar friend: Time
One of the determining factors in this story was time. For the case of Suntec REIT, the 88.6% returns from dividends did not happen overnight, but was a result of accumulated dividends over a span exceeding nine years. Starting from the IPO price of $1.00, the REIT has steadily returned an accumulated sum of 88.6 cents in dividends from then till now.
What’s more, the yearly dividends for Suntec has risen steadily from 7.31 cents in 2006 to 9.33 cents in 2013. Investors who held Suntec REIT, from IPO till today, would be earning a healthy 9.3% yield-on-cost (on a trailing twelve months basis). It’s notable that the yield-on-cost for Suntec REIT, if it was held since its IPO, has already exceeded the long-term average annual returns (inclusive of dividends) of 8.7% for the STI ETF (SGX:ES3), a proxy for the STI.
Foolish Bottom Line
To be sure, not all REITs are made equal. My colleague, Ser Jing gave a few pointers on how you might want to go about looking for the right REIT for you. That said, whichever REIT you might chose, it pays to give due consideration for the key factors which might turn it into a success. And chief amongst the key factors, is time.
And speaking of patience for success, all you have to do is to sit around while your money was working hard.
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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 contributor Chin Hui Leong owns shares in Suntec Real Estate Investment Trust and Mapletree Logistics Trust.