There are around 40 real estate investment trusts (REITs) and stapled trusts in Singapore currently. As highlighted here, the REITs and six stapled trusts had an average distribution yield of 6.7%, as of 6 July 2018. The figure is an average, so some REITs will have an above-average yield while others will be below-average. A REIT’s distribution yield can be affected by a number of factors; one such factor is the sub-segment in which the REIT operates in.
With that in mind, let’s look at the various sub-segments a REIT or stapled trust operate in, as categorised by the Global Industry Classification Standard (GICS).
This sub-segment holds real estate used for retail activities such as shopping centres, something that most investors would be familiar with. To know if a certain shopping mall is doing well, investors can simply walk into the mall and observe the shopper traffic, the type of tenants, and whether the mall is fully occupied with tenants. The popularity of retail REITs could be why it tends to provide lower distribution yields as compared to other REIT sub-segments.
Starhill Global Real Estate Investment Trust (SGX: P40U) owns a mix of both local and overseas properties.
Mapletree Commercial Trust (SGX: N2IU), which owns both retail and office properties, is classified as a retail REIT under the GICS. The trust owns five properties, including VivoCity, Singapore’s largest retail mall, and Mapletree Business City.
The industrial sub-segment covers properties such as factories, warehouses and business parks. Singapore’s largest REIT in terms of market capitalisation comes from this sub-sector, and that is Ascendas Real Estate Investment Trust (SGX: A17U). Industrial REITs usually have high distribution yields due to the short 30-year leases that most Singapore industrial properties have as compared to retail or office real estate.
This sub-segment owns properties that are used for office or commercial purposes. The largest office REIT listed here is CapitaLand Commercial Trust (SGX: C61U). In recent times, the distribution yields for some office REITs have been falling due to higher REIT unit prices resulting from a pickup in the commercial sector.
Hotel & Resort
This sub-segment hosts hospitality-related properties such as hotels and serviced residences. The entities in this sub-segment are often structured as a stapled trust. Stapled trusts in the hotel and resort sub-sector include CDL Hospitality Trusts (SGX: J85), Frasers Hospitality Trust (SGX: ACV) and OUE Hospitality Trust (SGX: SK7).
REITs in this sub-segment hold healthcare-related assets such as hospitals and nursing homes. Due to their resilient and stable nature, healthcare REITs are popular among investors. Therefore, such REITs usually offer lower distribution yields and trade at a premium to their book values as compared to other REITs.
Others: Specialized, Diversified and Residential
There are other REITs and stapled trusts that do not fall into the sub-segments discussed above. Keppel DC REIT (SGX: AJBU), which owns data centres, falls under the specialized sub-sector.
Mapletree North Asia Commercial Trust (SGX: RW0U), formerly known as Mapletree Greater China Commercial Trust, is a diversified REIT. REITs such as Viva Industrial Trust (SGX: T8B) and Suntec Real Estate Investment Trust (SGX: T82U) are also classified as diversified REITs. Meanwhile, Ascott Residence Trust (SGX: A68U) is a residential REIT.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended units of CapitaLand Mall Trust, Frasers Centrepoint Trust, CapitaLand Retail China Trust, Mapletree Commercial Trust, Mapletree Industrial Trust, CapitaLand Commercial Trust, First Real Estate Investment Trust, Parkway Life REIT and Ascott Residence Trust. Motley Fool Singapore contributor Sudhan P owns units in CapitaLand Mall Trust and CapitaLand Commercial Trust.