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REITs That Have Trounced The Market

The Straits Times Index (SGX: ^STI) has, over the last 5 years, risen by around 4.9% annually. Of course, five years ago investors would have been buying at the market bottom, though they probably didn’t know it at the time. Nevertheless, given the financial crisis of the time, buying shares would have taken a certain amount of courage.

That said, the return from shares comfortably beats the risk-free rate of return by around two-fold. So those who were brave enough to invest should have been greatly rewarded.

More impressive still is the total return of the Straits Times Index over the same period. This is the return you would have achieved had you regularly reinvested the dividends generated by your investments. The total return over the last five years has been a very generous 7.9%.

One industry that has, as a whole, outperformed the market is Real Estate Investment Trusts or REITs. An ever-popular investment option here in Singapore, a quick look at the numbers could highlight why they are quite liked.

Of the 19 quoted REITs with a listing in Singapore no fewer than 18 have beaten the market’s total return over the last five years.

A notable laggard was Ascendas India Trust (SGX: CY6U). And even this REIT has managed to generate an annualised growth rate of 6.6%. Someone who had bought shares in Ascendas India Trust back in September 2009 and held onto their investment until September 2014, whilst also reinvesting their dividends, would have seen their investment grown by around 40%. Not too bad for the worst performer.

At the top end of the spectrum, the best performing REIT over the last five years in terms of total returns was First Real Estate Investment Trust (SGX: AW9U). With an annualised total return of a whopping 30%, investors in First REIT over the last 5 years should have seen the value of their investment almost quadruple.

So why have the REITs performed well?

There could be several reasons for that. By definition, REITs have to distribute at least 90% of their taxable income to shareholders. So those who are able to reinvest their dividends could potentially compound their returns significantly.

A second reason could be positive rental reversions. Or put another way, landlords might be able to increase rents at the end of a contract period, provided they continually improve the appearance of their assets.

A third reason could simply be because land is a scarce resource. While a property investment can never be described a one-way bet, a limited resource together with reasonably high demand could provide the right conditions for asset prices to rise over time.

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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 Adam Kuo doesn’t own shares in any companies mentioned.