The 3 Billion-Dollar REITs With The Highest Distribution Yields

Real estate investment trusts in Singapore’s stock market aren’t given much love by investors lately, judging from the fact that many of them are trading near 52-week lows.

Challenges that REITs in general are facing are well-known. There’s Singapore’s slowing economic growth; an increase in interest rates; and, for some property sectors at least, overcapacity issues.

But, these challenges have also managed to bring something positive to investors: There are many REITs now with distribution yields that are near the high end of their historical ranges.

A word of caution here is warranted. A high yield, on its own, is not a sufficient reason to justify an investment. A REIT with a high yield may have an unsustainable distribution; in such an instance, a high yield is as good as a low yield.

That being said, a pool of high-yielding REITs can still be a good place to hunt for potential investment ideas that are worth a deeper study.

With this in mind, I want to look at the three highest yielding REITs amongst a list of REITs that have market capitalisations of over S$1 billion. In third place is OUE Hospitality Trust (SGX: SK7). It is technically not a REIT – it’s a stapled trust that consists of a REIT and a business trust.

Based on the latest information from SGX Stock Facts, OUE Hospitality Trust has a distribution yield of 8.2% and a price-to-book (PB) ratio of 0.81.

The trust focuses primarily on hospitality assets in Singapore. At the moment, it has three assets under its belt, namely, the two hotels, Mandarin Orchard Singapore and Crowne Plaza Changi Airport, and the high-end retail mall, Mandarin Gallery. The two Mandarin-branded entities are actually physically connected.

I had recently taken a look at three important aspects of the trust’s business: Its growth in the first three quarters of 2016; the occupancy and average room rates of its properties; and how concentrated its portfolio is. Check it out here.

Next up is Frasers Hospitality Trust (SGX: ACV). It is similar in nature to OUE Hospitality Trust in that it is also a stapled trust that consists of a business trust and a REIT.

Frasers Hospitality Trust currently has a distribution yield of 8.3% and a PB ratio of 0.72, according to data from SGX Stock Facts.

The trust’s portfolio consists of 15 properties that are located across nine cities in Asia, Australia, and Europe. These properties collectively have 3,914 rooms, of which 3,072 are hotel rooms and 842 are serviced residential units.

The billion-dollar REIT with the highest yield is Lippo Malls Indonesia Retail Trust (SGX: D5IU), or LMIRT for short.

Latest data from SGX Stock Facts show that it has a distribution yield and PB ratio of 9.2% and 0.83, respectively.

LMIRT owns a portfolio comprising 19 retail malls and seven retail spaces. For investors who are interested in finding a way to invest in Indonesia’s retail industry, LMIRT offers that exposure given that all its malls and retail spaces are found in the country. The REIT raised its 2016 third quarter distribution per unit by 11.7% year-on-year.

A Foolish conclusion

The three trusts 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. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.