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5 Billion-Dollar REITS That Have Distribution Yields Of Around 7% Now

Real estate investment trusts, or REITs, are popular investment choices in the Singapore stock market. That’s because REITs tend to have high distribution yields due to their need to distribute up to 90% of their taxable income to unitholders to enjoy tax transparency.

In this article, I share with you five billion-dollar REITs that are trading at high yields of about 7%; my focus though, is on one of the five: OUE Hospitality Trust  (SGX: SK7)

Source: SGX StockFacts

As a quick introduction, OUE Hospitality Trust, or OUEHT, is a Singapore based trust that focuses on investing primarily in properties used for hospitality and/or hospitality-related purposes. The properties under the trust are Mandarin Orchard Singapore, Crowne Plaza Changi Airport and Mandarin Gallery.

For the quarter ended 30 June 2018, OUEHT reported that gross revenue declined 1.4% while net property income fell 0.5% as compared to the same period last year. The decline was due to weaker performance in both the retail and hospitality segments. Consequently, distribution per stapled security came in lower at 1.17 cents, down by 3.3% year-on-year. As at 30 June 2018, the REIT clocked in a gearing ratio of 38.7%.

Chen Yi-Chung Isaac, acting CEO of the REIT’s manager, commented:

“OUE H-Trust’s hotel portfolio revenue per available room (RevPAR) rose 2.6% to $195 in 2Q2018 compared to 2Q2017. Crowne Plaza Changi Airport’s (CPCA’s) operating performance has progressively improved with RevPAR increasing 10.5% to $168 in 2Q2018 from $152 in 2Q2017. For 2Q2018, OUE H-Trust received minimum rent for CPCA as it continued with the ramping up of its operations. Mandarin Orchard Singapore (MOS) recorded marginally lower RevPAR compared to 2Q2017 due to weaker demand from the wholesale segment, partially mitigated by higher demand from the transient segment. Food and beverage sales in MOS recorded a decline in banquet sales, partially mitigated by higher revenue achieved in all MOS’ food and beverage outlets. Overall, the total revenue and NPI from hospitality segment was 1.4% and 0.5% lower than 2Q2017.”

He added:

“The average occupancy of Mandarin Gallery has increased from 96.0% in 1Q2018 to 97.4% in 2Q2018, higher than 93.9% in 2Q2017. However, revenue and NPI from the retail segment were slightly lower due to a lower effective rent of $22.3 psf/mth in 2Q2018 compared to $23.8 psf/mth in 2Q2017 as a result of negative rental reversion in the preceding quarters. Since 4Q2017, Mandarin Gallery has achieved positive rental reversion for three consecutive quarters.”

The Foolish conclusion

So there you go, five REITs that are trading at high yields of 7%. Investors should be reminded, however, that low price alone is enough to justify a buy decision. Thus, it is important the investors carry out their research on the trust’s future income prospects before committing any capital.

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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. Motley Fool Singapore has recommendations for CapitaLand Retail China Trust and First Real Estate Investment Trust.