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 dividend yields – say 7% or above – and then study them in depth. (It’s worth noting that the dividend of a REIT is technically known as a distribution.) Some areas I would investigate 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 look…
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 dividend yields – say 7% or above – and then study them in depth. (It’s worth noting that the dividend of a REIT is technically known as a distribution.) Some areas I would investigate 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 look at three REITs in Singapore’s market that have yields of over 7% each. They are Cache Logistics Trust (SGX: K2LU), Viva Industrial Trust (SGX: T8B), and AIMS AMP Capital Industrial REIT (SGX: O5RU).
Source: SGX Stock Facts; Yahoo Finance
Cache Logistics Trust is a REIT that focuses on logistics properties. It currently has 19 logistics warehouse properties in its portfolio which are located in established logistics clusters in Singapore, Australia, and China.
In late October, Cache Logistics Trust released its 2017 third quarter earnings. The REIT experienced a 2.2% year-on-year decline in gross revenue to S$27.43 million. Consequently, net property income, at S$21.34 million, was 3.3% lower than a year ago. Partly as a result of a September 2017 rights issue, Cache Logistics Trust’s distribution per unit fell by 12.8% year-on-year to 1.541 cents.
Looking ahead, the REIT commented in its earnings release that a pick-up in leasing demand is expected in the Singapore industrial property market, and that vacancy rates should stabilise over time. Singapore is Cache Logistics Trust’s largest market, accounting for 82% of gross revenue in the third quarter of 2017.
Next up we have Viva Industrial Trust, a stapled trust that consists of a business trust and REIT. It invests in business parks and other industrial properties. Currently, Viva Industrial Trust’s portfolio comprises nine properties in Singapore.
Viva Industrial Trust also announced its 2017 third quarter earnings in late October. Unlike Cache Logistics Trust, Viva Industrial Trust produced solid growth in the reporting quarter. On a year-on-year basis, gross revenue was up 16.8% to S$28.34 million, net property income jumped 18.3% to S$20.60 million, and the distribution per stapled security grew 5.0% to 1.90 cents.
In its earnings release, Viva Industrial Trust cited data from Maybank Kim Eng Research, and said that “demand for industrial space is expected to improve with stronger industrial production.” The trust also said that “SMEs surveyed by Singapore Business Federation expected capital expenditure expansion and in turn stronger demand for space in the next six months.”
Lastly, we have AIMS AMP Capital Industrial REIT, another industrial REIT with a heavy focus on Singapore. As of 30 September 2017, the REIT has 26 industrial properties in Singapore, and a business park in Australia.
In late October, AIMS AMP Capital Industrial REIT released its earnings for the second quarter of its financial year ending 31 March 2018 (FY2018). The reporting quarter, which stretched from 1 July 2017 to 30 September 2017, was not good for the REIT. Gross revenue declined 1.3% year-on-year to S$29.51 million while distribution per unit fell 7.3% to 2.55 cents.
Regarding its market, AIMPS AMP Capital Industrial REIT thinks that the “industrial oversupply situation this year [in Singapore] is likely to exert further downward pressure on rentals and occupancy.”
Yesterday, the REIT announced that it has successfully closed a private placement. The exercise saw the REIT issue 42.145 million new units at a price of S$1.305 each, raising S$55 million in gross proceeds in the process. AIMS AMP Capital Industrial Trust said that the proceeds “would primarily be used to repay [the] REIT’s existing borrowings to reduce aggregate leverage and create additional debt headroom for future potential acquisitions, asset enhancement initiatives and/or other development opportunities… as well as for the balance payments on… recent development projects.”
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.