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…
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 in Singapore that have market capitalisations of over S$1 billion.
In third place is AIMS AMP Capital Industrial REIT (SGX: O5RU). Based on the latest information from SGX Stock Facts, the trust has a yield of 8.31% and a price-to-book (PB) ratio of 0.91.
The trust, which focuses on industrial real estate (as its name suggests), has 26 properties in Singapore and one in Australia.
Its latest earnings was for the nine months ended 31 December 2016. In that period, it reported a 4.0% year-on-year decline in net property income, which eventually resulted in a 1.5% dip in its distribution per unit.
The good thing here is that the REIT’s portfolio is outperforming its broader market. As of 31 December 2016, the average occupancy rate for business/office parks, warehouses, and Hi-Tech/Industrial & Manufacturing buildings in Singapore was 89.5%, which is lower than AA REIT’s portfolio occupancy of 94.0%.
In its earnings release, AA REIT commented that “rentals continue to be under pressure” as a result of “the uncertain macroeconomic and geopolitical outlook and the industrial oversupply situation in Singapore.” But, the REIT is fighting back by focusing on asset enhancement opportunities and proactive management of lease expiries with “tenant retention as the top priority.”
The second spot goes to Lippo Malls Indonesia Retail Trust (SGX: D5IU), which owns 20 retail malls and seven retail spaces in its portfolio. These retail assets are all located in Indonesia. According to SGX Stock Facts, LMIRT has a yield of 8.63% and a PB ratio of 0.90.
The trust recently announced its earnings for the fourth quarter and whole of 2016. It managed to achieve growth for both periods. During the last quarter of 2016, LMIRT saw its net property income and distribution per unit grow by 8.9% and 7.4%, respectively, compared to a year ago. As for the entire 2016, the REIT’s net property income climbed by 8.4% while its distribution per unit jumped by 10%.
In a similar manner to AA REIT, LMIRT’s portfolio occupancy is beating the market’s. The Indonesia-focused REIT reported an occupancy rate of 94.3% at end-2016, which is higher than the industry average of 85.4%.
LMIRT is positive about its long-term outlook, judging from the following comment in its earnings release: “In the long term, the Indonesian consumer story is still strongly supported by the country’s large population base and rapidly expanding consumer class with increasing levels of purchasing power and disposable income.”
The billion-dollar REIT in Singapore with the highest yield is currently Viva Industrial Trust (SGX: T8B). Data from SGX Stock Facts show that it has a yield of 8.92% and a PB ratio of 0.99.
Viva Industrial Trust invests in business parks and industrial properties in Singapore and elsewhere in the Asia Pacific Region. Right now, its portfolio consists of nine properties that are all located in Singapore.
The trust’s properties serve a diverse tenant base of small/medium enterprises and large multinational corporations from various trade sectors, including food & beverage, retail, logistics, self-storage, electronics, healthcare, IT, and more.
Viva Industrial Trust recently announced its results for the quarter and year ended 31 December 2016. It managed to show solid growth in the quarter ( net property income and distribution per stapled security were up by 31.7% and 7.7%, respectively) but its performance for the year was mixed. In 2016, the trust saw its gross revenue jump by 28.6%, but its DPS actually slipped by 0.6%.
In the earnings release, the trust mentioned that one of its properties, Viva Business Park, would be obtaining TOP for the third and final phase of its asset enhancement initiative (AEI) in February. Viva Industrial Trust added that the business park’s AEI has been successful, judging from the “level of committed leases for the total “white” space at VBP reaching 94.9%.”
The trust also acquired a logistics and warehouse development at 6 Chin Bee Avenue (this is included in Viva Industrial Trust’s aforementioned property count of nine) in January this year. Viva Industrial Trust expects the property to start contributing income from the first quarter onward.
Although the trust thinks that there is “likely to be downward pressure on occupancy rates, prices and rental” for industrial properties in Singapore, it thinks its “defensive portfolio fundamentals are expected to remain resilient and well-positioned to weather the economic uncertainties.”
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.