It’s not a secret that interest rates are low in Singapore and many parts of the word. Some investors and market commentators believe that this has pushed up valuations of companies, hence resulting in low dividend yields. Thing is, not every listed entity in Singapore’s stock market have low yields. I had used a stock screener provided by bourse operator Singapore Exchange Limited (SGX: S68) to find real estate investment trusts with a yield of more than 8%. There were a few REITs that popped up. Here are two I randomly selected: AIMS AMP Capital Industrial REIT (SGX: O5RU) and Cambridge Industrial…
It’s not a secret that interest rates are low in Singapore and many parts of the word. Some investors and market commentators believe that this has pushed up valuations of companies, hence resulting in low dividend yields.
Thing is, not every listed entity in Singapore’s stock market have low yields. I had used a stock screener provided by bourse operator Singapore Exchange Limited (SGX: S68) to find real estate investment trusts with a yield of more than 8%.
Source: SGX Stock Facts and Yahoo Finance
AIMS AMP Capital Industrial REIT, or AA REIT for short, focuses on industrial properties. Its current portfolio contains 26 properties with 25 being in Singapore and the remaining one being in Australia.
The REIT had recently reported a weaker quarterly performance. A few numbers can illustrate the situation.
For the quarter ended 30 September 2016, AA REIT’s gross revenue declined by 4.3% year-on-year whilst its net property income fell by 6.9%. Its distributable income also inched down by 1.4% to S$17.53 million. Consequently, the REIT’s distribution per unit ticked downwards by 1.8% from 2.80 cents a year ago to 2.75 cents.
Over the last three months, AA REIT’s unit price has declined by over 7%. In its latest earnings release, AA REIT mentioned that the industrial leasing market in Singapore “will continue to remain challenging in the short term as rents and occupancies continue to be under pressure” as a result of an oversupply of industrial space and the “weak economic climate.”
The next REIT I have is Cambridge Industrial Trust, which owns a total of 50 properties right now. These properties are located across Singapore and belong to the industrial sector, in a similar manner to AA REIT.
Cambridge Industrial Trust’s properties range from logistics, warehousing, light industrial, general industrial, a car showroom and a workshop, to a business park. They are also located close to major transportation hubs and key industrial zones island-wide.
In yet another similarity to AA REIT, Cambridge Industrial Trust saw its business decline in the third-quarter of 2016. Year-on-year, the REIT’s quarterly gross revenue declined by 2.9% whilst its net property income (NPI) dropped by 8.3%. Its distribution per unit (DPU) came in at 0.987 cents, down an even more painful 18.0% from a year ago.
Apart from the difficult conditions within the industrial sector in Singapore’s property market, Cambridge Industrial Trust also foresees downward pressure on its business from other sources. For instance, the REIT’s conversion of its properties from single-tenant leases to multi-tenanted ones “will continue to have a negative impact on portfolio occupancy and net property income” in the rest of the year.
A Foolish conclusion
The two REITs mentioned above may have fat distribution yields. But it is worth noting that the yields alone tell us nothing about whether they can sustain their distributions going forward. Investors need to dig into the REIT’s fundamentals before coming to any investment decision.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.