How To Analyse A Real Estate Investment Trust

Singapore is home to a wide selection of real estate investment trusts (REITs). Many of these REITs own some of the most valuable properties in the region. REITs in Singapore are also offering much higher yields than other REITs in Asia, making them very attractive at the moment.

So, how can we go about analysing a REIT?

Yield And Earnings Sustainability

REITs are mainly attractive to income investors. That means investors buying REITs are mostly interested in the yield of the REITs. Therefore, we need to analyse how the REIT is financing its distribution. Moreover, we need to check if the REIT has a stable earnings power to maintain its distribution. A REIT that is yielding 6% but with one of its major tenants announcing that it would not be renewing leases might not be music to the ears.


Secondly, the debt level of a REIT is critical. An investor needs to take note of the gearing level of the REIT, its average tenor and the average interest rate on its debts. Another key point to check is the refinancing schedule of a REIT. This is because if a REIT has an enormous amount of debt to be refinanced within a particular year, it increases the solvency risk for the REIT if it is unable to refinance the full amount.

The Quality Of The Properties

Lastly, investing in REITs in Singapore has a significant advantage. If you are investing in a REIT with local assets, you can visit the buildings to check if the properties are being well-maintained and if there’s sufficient footfall at these properties. This is especially important for retail REITs. Investors can just spend some time visiting these malls. By visiting the actual property, it will give us a good sense of the operations of the asset.

Foolish Summary

REITs can be a great asset class for income investors. However, there are still risk involved in REITs. It is important for us to do some research before investing in any REIT. At a base line, the above are the three things that we should check on before investing in REITs.

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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 Stanley Lim doesn’t own shares in any companies mentioned.