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Here Are 2 Billion-Dollar REITs With Yields Of Over 7%

Real estate investment trusts have long been a popular investment vehicle for Singaporeans. But, not every REIT is a good investment. To start my search for potential REIT investments, 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 look at two REITs in Singapore’s market that have yields of over 7%. The duo, which also have market capitalisations of over S$1 billion each, are: OUE Commercial Real Estate Investment Trust (SGX: TS0U) and Lippo Malls Indonesia Retail Trust (SGX: D5IU).


Source: SGX Stock Facts; Yahoo Finance

OUE Commercial REIT is a commercial/retail REIT whose portfolio currently consists of three buildings, namely, OUE Bayfront, One Raffles Place, and Lippo Plaza. The first two are located in Singapore whereas the third is in Shanghai.

The REIT released its 2017 first quarter earnings in early May and reported a 4.4% year-on-year increase in revenue to S$44.8 million. Unfortunately, its amount available for distribution fell by 2.3% to S$16.6 million. And, because of a March 2017 private placement which led to an increase in the REIT’s unit count, its distribution per unit fell by 6.8% to 1.23 cents.

As of 31 March 2017, OUE Commercial REIT has an aggregate leverage of 36.2%, which represents a fair distance from the regulatory leverage ceiling of 45%.

Looking ahead, OUE Commercial REIT said in its latest earnings that “negative rental reversions for leases due for renewal in 2017 may be expected.” That’s because “current market rents are still lower than in 2014, when most of [the REIT’s] Singapore leases expiring in 2017 were committed.” As for China, the REIT mentioned that the “overall CBD Grade A vacancy rate [in Shanghai] may continue to increase in the coming quarters and hence the rental outlook continues to be soft.”

Lippo Malls Indonesia Retail Trust (LMIRT) is the first and only real estate investment trust in Singapore’s stock market that focuses on Indonesian retail properties. It was listed nearly 10 years ago on 19 November 2007. As of 31 December 2016, the REIT has 20 retail malls and seven retail spaces in its portfolio. They are all located in Indonesia.

In early May, LMIRT released its 2017 first quarter earnings. Unlike OUE Commercial REIT, LMIRT handed in a solid report card. During the reporting quarter, it experienced a 6.7% increase in gross revenue to S$48.6 million compared to the first quarter of 2016. Its distributable income to unitholders and distribution per unit also grew by 8.4% (to S$25.1 million) and 7.2% (to 0.89 cents), respectively.

The REIT’s balance sheet looks strong as well with a gearing ratio of just 32.2% as of 31 March 2017. Commenting on its future, LMIRT thinks that the “fundamentals of the Indonesian economy remains strong, with a robust rate of economic growth.” The REIT also cited data from FocusEconomics that private consumption in Indonesia is expected to grow by 5.2% in 2017.

A Foolish conclusion

The two 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.