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The Top-Performing REITs in 2014 And What Their Future Holds

Singapore is home to one of the most active capital markets for REITs in the region. As an example of that vibrancy, there are more than 30 REITs and property trusts listed here in Singapore. So, how has 2014 been for the REITs listed here?

The year of the REITs

If you had invested in REITs this year, it’s likely you would have had a good experience. Most of the REITs listed in Singapore had a positive return for the year for its unitholders. The best performing REITs even achieved a total return of more than 30% for their unitholders in 2014. That’s an amazing record given that the Straits Times Index (SGX: ^STI) has only grown by 6.3% since the start of 2014.

Let’s take a look at this year’s top REIT performers and see if their gains are sustainable (all return figures quoted are as of 30 December 2014).

The sun is shining

The title of the best-performing REIT in 2014 belongs to Suntec Real Estate Investment Trust (SGX: T82U). It has clocked in a 34.8% total return in the year for its unit-holders.

Suntec REIT is scheduled to have completed its refurbishment works and makeover of Suntec City by the end of this year and during the year, the trust also started its first foreign development in Sydney, Australia. This means that Suntec REIT has a new potential avenue for growth in being a regional REIT instead of one that’s focused on just Singapore.

Suntec REIT has a distribution yield of 4.7% for its unitholders at its closing price of S$1.98 yesterday. With interest rates still at very low levels currently, a yield of 4.7% can be considered to be at least decent for investors.

Fortune favours the brave

Second on the list of the best performing REITs is Fortune Real Estate Investment Trust (SGX: F25U), a REIT with a focus on retail properties in Hong Kong. The trust has delivered a total return of 31.5% since the start of 2014 and currently manages 17 retail properties with a total retail space of 3.11 million square feet.

The trust has been able to grow its revenue consistently over the past 5 years.

Year Revenue
2009 HK$701 million
2010 HK$837 million
2011 HK$909 million
2012 HK$1,114 million
2013 HK$1,318 million

Source: S&P Capital IQ

At a price of HK$7.73 per unit, Fortune REIT has a distribution yield of 5.5% and is trading at a price to book ratio of only 0.7 even after experiencing a huge gain this year. Even if the retail sector in Hong Kong has been hurt by the recent pro-democracy rallies there, it seems that Hong Kong’s reputation as a retail paradise is still intact over the long term.

Capita-lism rules

Lastly, we have CapitaRetail China Trust (SGX: AU8U), which generated a total return of 29.0% for its investors in 2014. CapitaRetail China Trust is a retail REIT sponsored by CapitaLand Limited (SGX: C31) and it focuses mainly on retail properties in mainland China.

The REIT currently has interests in 10 shopping malls in China which are all managed under the “CapitaMall” brand. The REIT’s yielding 5.6% at its closing price of S$1.61 yesterday. With the huge potential in China’s consumer market – the sheer number of people as well as the government’s aim to transform the country’s economy into a consumer-led one – the trust can experience some significant tailwinds if it plays its cards right.

Foolish Summary

It seems that all the three REITs mentioned above still have huge potential ahead of them. However, due to the restriction of having to distribute 90% of their earnings to unitholders, many REITs have to turn to issuing new units to fund their expansion plans. Therefore, there is a risk that even as a REIT grows in size, the net positive gain for investors might be minimal after taking into account the dilutive effects. It is important for investors to consider this when investing in a REIT.

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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 Stanley Lim doesn’t own shares in any companies mentioned.