It’s not a secret that interest rates are low in Singapore and many parts of the world. 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 8% or more at the moment. There were many REITs that popped up. Here are two I randomly selected: Viva Industrial Trust (SGX: T8B) and…
It’s not a secret that interest rates are low in Singapore and many parts of the world. 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 8% or more at the moment. There were many REITs that popped up. Here are two I randomly selected: Viva Industrial Trust (SGX: T8B) and IREIT Global (SGX: UD1U).
Source: SGX Stock Facts; Yahoo Finance
Viva Industrial Trust is a stapled trust that consists of a real estate investment trust and business trust. It currently has a portfolio of nine properties in Singapore. These properties, which are either business parks or used for industrial purposes, have a total gross floor area of 3.90 million square feet and a collective value of $1.29 billion.
The trust announced its latest results (for the year ended 31 December 2016) just last week. In 2016, Viva Industrial Trust enjoyed a positive performance on most fronts as its gross revenue, net property income, and distributable income grew by 28.6%, 34.7%, and 28.3%, respectively.
But, the trust’s distribution per stapled security actually declined by 0.6% as a result of a higher number of securities outstanding stemming from a private placement conducted in November 2016 for the acquisition of a property.
In the earnings release, Viva Industrial Trust commented on the conditions of the industrial property market:
“According to JTC, prices and rentals of industrial space continued to fall in tandem with occupancy rates. In 3Q2016, the price and rental indices for the overall industrial property market fell by 1.7% and 2.0% respectively, together with a fall in occupancy rate by 0.3% percentage points.
With about 3.0 million sqm of industrial space coming on-stream from 3Q2016 till end of 2017, there is likely to be further downward pressure on occupancy rates, prices and rentals.”
The stapled trust also said that the “business park market is expected to put in a steady performance given favourable demand and supply dynamics.”
It added that its manager will continue to “drive organic growth through proactive asset management by improving occupancy of the portfolio,” and “seek out good quality assets and pursue accretive inorganic growth opportunities.”
IREIT Global is the next REIT on our list. It is the first Singapore-listed REIT that focuses on owning commercial properties in Europe and got listed only in August 2014. Its portfolio currently comprises five freehold properties in Germany (located in Berlin, Bonn, Darmstadt, Munster, and Munich) with a total value of €449.8 million and a net lettable area of 200,603 square metres.
The REIT’s latest results were for the quarter and nine months ended 30 September 2016. In the first three quarters of 2016, IREIT Global experienced solid growth in gross revenue, net property income, distributable income, and distribution per unit. The four metrics jumped by 41.0%, 40.1%, 33.8%, and 32.9%, respectively, in euro terms when compared to the same period in 2015. In terms of the Singapore dollar, IREIT Global’s distribution per unit increased by 31.2%.
The REIT also ended its reporting quarter with a high occupancy rate of 99.7%. In its earnings release, IREIT Global commented that the “German office and investment market for the third quarter of 2016 remains strong,” according to data from Colliers International. The REIT’s portfolio is thus expected “to remain stable.”
It’s worth noting too that the REIT’s manager was acquired by Tikehau Capital on 11 November 2016. The new manager “expects to contribute to the growth of IREIT with its pan-European network combined with strong local operational expertise and existing pipeline of real estate transactions in Europe.”
IREIT Global’s new manager also has the intention of widening the REIT’s investment mandate to include retail and industrial properties, alongside the current commercial focus.
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.