Where can investors find stocks that have high dividend yields and carry relatively low risks? My suggestion would be real estate investment trusts, also known popularly as REITs. Of course, not every REIT is a good investment. To start my search for REITs, I would screen for those with high yields – say 7% or above – and then study them in depth. Some areas I would look out for are the quality of a REIT’s management team, the financial health of the REIT, and the profile of the REIT’s property portfolio. In here, I want to take a closer…
Where can investors find stocks that have high dividend yields and carry relatively low risks? My suggestion would be real estate investment trusts, also known popularly as REITs.
Of course, not every REIT is a good investment. To start my search for REITs, I would screen for those with high yields – say 7% or above – and then study them in depth. Some areas I would look out for are the quality of a REIT’s management team, the financial health of the REIT, and the profile of the REIT’s property portfolio.
Source: SGX Stock Facts; Yahoo Finance
Viva Industrial Trust is technically not a REIT. It is a stapled trust that consists of a REIT and a business trust, but we are not going to be splitting hairs here.
Its portfolio currently consists of nine industrial and business park properties that are all located in Singapore. These properties have a tenant and subtenant base of local and multinational companies from various trade sectors, including food & beverage, retail, logistics, storage, electronics, healthcare, renewable energy solutions, information technology, and more.
The trust recently announced its 2016 fourth quarter and full-year results. For the quarter, Viva Industrial Trust experienced a 29.8% year-on-year jump in revenue and a 31.7% increase in net property income. The distribution per stapled security (DPS) also grew, albeit at a lower rate of 7.7%. Investors may want to know that the REIT’s occupancy rate – at 89.8% at end-2016 – has been rising over the past three years, as shown in the chart below:
Source: Viva Industrial Trust earnings presentation
In its earnings release, Viva Industrial Trust also commented on its market conditions. The trust said that “with about 3.0 million sqm of industrial space coming on-stream [in Singapore] from 3Q2016 till end of 2017, there is likely to be further downward pressure on occupancy rates, prices and rentals.”
The outlook for the business park market is a little brighter as the trust said that the market “is expected to put in a steady performance given favourable demand and supply dynamics.”
IREIT Global is the first Singapore-listed REIT that focuses on investing in commercial properties in Europe. Right now, the REIT’s portfolio consists of five commercial properties in Germany.
This could change in the future though, as the trust’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.” Tikehau Capital also has the intention of widening IREIT Global’s investment mandate to include retail and industrial properties, alongside the current commercial focus.
IREIT Global released its 2016 fourth quarter results on 28 February 2017. It was not a good quarter for the REIT as its quarterly gross revenue and distribution per unit had suffered slight year-on-year declines of 0.4% and 1.9% respectively in euro-denominated terms. With a weaker euro in comparison to the Singapore dollar, IREIT Global’s distribution per unit in Singapore dollar terms had experienced a larger decline of 2.5%.
The positive thing about the REIT is that its occupancy rate at end-2016 is a strong 99.8%.
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. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.