One of the more popular types of investments in Singapore is the real estate investment trust. Due to the structure of REITs, they are required to pay out most of their taxable income to their unitholders; this results in them offering high distribution yields for investors. Moreover, since we’re currently in a low interest rate environment, REITs, with their high yields, would seem like an attractive avenue for investors to earn income. But, not every REIT would be a good investment. And with over 30 REITs in our local stock market, it’s important that investors attempt to separate the wheat…
One of the more popular types of investments in Singapore is the real estate investment trust.
Due to the structure of REITs, they are required to pay out most of their taxable income to their unitholders; this results in them offering high distribution yields for investors. Moreover, since we’re currently in a low interest rate environment, REITs, with their high yields, would seem like an attractive avenue for investors to earn income.
But, not every REIT would be a good investment. And with over 30 REITs in our local stock market, it’s important that investors attempt to separate the wheat from the chaff. So, where should we start in our hunt for potential investing opportunities amongst REITs?
In my case, I would start by looking at REITs that are trading at prices close to a 12-month, or 52-week, low. From such a list, I would then carry on further research to understand each REIT’s property profile, financials, management-calibre, and future prospects.
Source: SGX Stock Facts
Parkway Life REIT is one of Asia’s largest listed healthcare REITs. As of 31 December 2016, the REIT’s portfolio comprises 44 properties with a total value of S$1.7 billion. These properties, which are a mixture of hospitals, medical centres, a pharmaceutical facility, and nursing home and care facilities, are found across Singapore (three), Malaysia (one), and Japan (40).
Although Parkway Life REIT only has three properties in Singapore, the REIT currently derives 62% of its gross revenue from the country.
The REIT recently announced its 2016 full year results. There was good top-line growth as the gross revenue increased by 7.2%. Although the REIT’s full year distribution per unit (DPU) was down by 8.8%, the decline was due to the absence of a one-off divestment gain that was recorded in 2015. Excluding the one-off distribution, Parkway Life REIT’s full year recurring DPU in 2016 would have grown by 2.8%.
In its earnings release, Parkway Life REIT mentioned that “the long-term prospects of the regional healthcare industry continue to be driven by rising demand for better quality private healthcare services given the fast-ageing populations.”
The second REIT on our list today is CapitaLand Mall Trust, the Singapore stock market’s oldest and largest REIT.
CapitaLand Mall Trust focuses on owning retail malls in Singapore. It currently has 16 properties, which are located in the suburban areas and downtown core. Some of the properties the trust owns are Tampines Mall, Junction 8, IMM Building, Plaza Singapura, and Funan, which is currently being redeveloped.
CapitaLand Mall Trust also recently released its results for 2016. The REIT experienced a 3.1% increase in gross revenue, but its distribution per unit (DPU) dipped by 1.1% to 11.13 cents.
The REIT shared some statistics about the performance of Singapore’s retail scene in its earnings release. It said that the retail sales index (excluding motor vehicle sales) declined by 0.6% and 2.1% year-on-year in October and November, respectively.
There are challenges in the Singapore retail market, but CapitaLand Mall Trust thinks that the characteristics of its portfolio (such as having malls that are “well-connected to public transportation hubs” and that are “strategically located either in areas with large population catchments or within Singapore’s popular shopping and tourist destinations”) will help it achieve stable and sustainable occupancy rates and rental revenues.
Though the REITs mentioned above are trading near their respective 52-week lows, there is no guarantee that their unit prices will not fall further. What is important is the business performance of the REITs going forward.
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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 CapitaLand Mall Trust. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.