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 nearly 40 REITs and stapled trusts (trusts that consist of a REIT and a business trust) 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
Ascott Residence Trust is a REIT that focuses on serviced residences and rental housing properties. Its portfolio currently consists of 90 properties in 14 different countries that collectively have over 11,600 units. Its total portfolio value is S$4.8 billion at the moment.
Ascott Residence Trust announced its 2017 first quarter results just last week. It was a mixed quarter for the REIT as its distribution per unit (DPU) fell by 14% year-on-year despite it enjoying a 5% increase in revenue.
The lower DPU was mainly due to the absence of currency exchange gains and dilution due to a placement exercise. Meanwhile, the growth in revenue came mainly from the acquisition of the Sheraton Tribeca New York Hotel in 2016.
The REIT also commented in its earnings release that a global economic recovery ahead is “likely to remain slow-paced”
Next up, we have IREIT Global, which is the first Singapore-listed REIT that focuses on investing in properties in Europe. Its portfolio currently consists of five commercial properties in Germany.
In late February, IREIT Global released its 2016 fourth quarter earnings. 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%.
Earlier this month, the REIT’s unitholders approved a change in its investment mandate. Previously, IREIT Global was predominantly a commercial REIT. The new mandate will include industrial and retail properties, in addition to commercial real estate. This change in mandate was driven by Tikehau Capital, which acquired IREIT Global’s Manager in late 2016.
Though the REITs mentioned above are trading near their respective 52-week lows, investors should be reminded that a low price alone is not enough to justify a buy. It is important that investors research a REIT’s future income prospects.
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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.