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How To Make The Most From Your REITs

One thing is clear when looking at the total return on offer from Singapore’s Real Estate Investment Trusts (REIT) over the last five years. You should seriously consider reinvesting the dividends.

Of the 19 REITs, 18 of them beat the market in terms of total returns. First Real Estate Investment Trust (SGX: AW9U) fares best, with a total annual return of 30%. Whilst this might sounds impressive, it does not tell the whole story. Nor does it emphasise how much of a difference reinvesting dividends can make to investors.

The real importance of reinvesting dividends can be seen if we take a look at the capital growth of the REITs and compare them with the total returns. The capital gain is the increase in the capital value of the investment without reinvesting dividends.

Interestingly, while 18 of the REITs delivered market-beating total returns, with even the worst performer delivering a positive annualised growth rate, the same cannot be said of capital growth.

With the annual growth rate of the Straits Times Index (SGX: ^STI) standing at 4.9% for the last five years, six of Singapore’s REITs have, in fact, performed worse than the market on this measure. Of these six, half even made capital losses.

Investors in Ascendas India Trust (SGX: CY6U), which delivered the worst annual total return of 6.6%, would have seen the value of their capital investment fall by 0.6% a year, had they not reinvested their dividends.

This means five REITs saw capital losses over the same five-year period that they beat the market with their total returns.

Interestingly, the worst performer in terms of capital gains was AIMS AMP Capital Industrial REIT (SGX: O5RU). Its annualised capital loss was 4% over the last five years. The reason why this is interesting is that in spite of these capital losses investors who reinvested their dividends would have seen annual total returns of 22%.

AIMS AMP Capital Industrial REIT’s total returns were beaten by only two other REITs, namely Fortune REIT (SGX: F25U) and, of course, First REIT, with total returns of 27% and 30% respectively.

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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.