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These 2 REITs Have Distribution Yields Of Over 7% At The Moment

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 7% at the moment. There were many REITs that popped up. Here are two I randomly selected: OUE Commercial REIT (SGX: TS0U) and Mapletree Greater China Commercial Trust (SGX: RW0U).

OUE Commercial REIT and Mapletree Greater China Commercial Trust yield and PB table
Source: SGX Stock Facts; Yahoo Finance

OUE Commercial REIT’s current portfolio is focused on commercial properties in Singapore and China.

It owns three buildings at the moment: UE Bayfront, a Grade A commercial building located at Collyer Quay; One Raffles Place, an integrated commercial development in Singapore’s Central Business District consisting of over two Grade A office towers and a retail mall; and Lippo Plaza, a Grade A commercial building located in the business district of Huangpu, Shanghai.

The REIT’s latest results are for the quarter ended 30 September 2016. It was a good three months for the REIT as it enjoyed year-on-year growth of 114% in gross revenue, 127% in net property income, and 29% in distribution per unit. OUE Commercial REIT had acquired One Raffles Place in October 2015 and that had played a big role in the REIT’s growth.

But in its earnings release, OUE Commercial REIT cautioned that “[w]ith underlying new demand remaining muted, challenges faced in back-filling secondary office space as well as potential uncommitted future supply may impact vacancy and rents [in Singapore].” The REIT sees a similar picture in Shanghai; it said that the “rental outlook is expected to be subdued.”

Meanwhile, Mapletree Greater China Commercial Trust has a focus on China-based commercial and retail properties.

In a similar manner to OUE Commercial REIT, Mapletree Greater China Commercial Trust’s portfolio also has three properties. This includes Festival Walk, a retail mall with an office component in Hong Kong; Gateway Plaza, an office building with a retail atrium that’s located in Beijing, China; and Sandhill Plaza, a business park development located in Shanghai’s Zhangjiang Hi-Tech Park.

In the third quarter of 2016, the REIT saw its gross revenue and net property income decline by 1.9% and 3.2%, respectively, compared to a year ago. Consequently, its distribution per unit had dipped by 2.4%.

Mapletree Greater China Commercial Trust had expressed some words of caution in its latest earnings release regarding its future outlook. It mentioned that “business and consumer sentiments will continue to be weighed down by the weak global growth environment.”

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.