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1 Simple Investment to Understand: SPH REIT

For those who are new to investing, the whole idea of digging through a company’s annual reports to study its history and future prospects can be very intimidating.

This is why it is important to start with companies or investment trusts with a simple structure or underlying business. In my view, one Singapore-listed entity which would fit the bill is SPH REIT (SGX: SK6U), a real estate investment trust (REIT) that is sponsored by newspaper publisher and property developer Singapore Press Holdings Limited (SGX: T39).

REITs are by themselves simple. A REIT owns a few properties and those properties, as well as the REIT’s investment operations, are managed by an external REIT manager. (In the case of SPH REIT, its manager is its sponsor, Singapore Press Holdings.) The manager gets a fee for providing its management service, and investors who invest in the REIT would enjoy the rental income that its properties are generating.

I think SPH REIT is also a simple REIT because it owns only two properties, namely, Paragon on Orchard Road and The Clementi Mall in the neighbourhood of Clementi. Both are retail malls and are easily accessible to any investor in Singapore.

Moreover, due to the much higher value of Paragon over Clementi Mall, investors can even focus on just Paragon and still likely end up with have a good understanding of SPH REIT’s overall picture. To the point, in the first-quarter of its fiscal year ending 31 August 2016 (FY2016), Paragon contributed  more than 80% of SPH REIT’s gross revenue and net property income.

So in essence, the performance of SPH REIT is due mainly to the rental income from Paragon and how the REIT can increase the yield and leasable area of the property.

If investors can understand and see how Paragon is doing and the condition of the property, they may get a good sense of how the REIT is performing. And the thing is, investors can do so – merely by strolling along Singapore’s famous shopping belt, Orchard Road,

Foolish Summary

Although some investors might think that analyzing a stock can be a complicated and time-consuming process, that’s not always the case. SPH REIT is a fine example of how simple the process of understanding an investment can be.

The Serbian poet Dejan Stojanovic once said, “The most complicated skill is to be simple.” It’s a homage to the power of simplicity and it’s something that applies to investing too. If you’re just getting your feet wet with investing, always start with the basics first.

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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 writer Stanley Lim does not own shares in any companies mentioned above.