On 5 October, the FTSE ST Singapore Shariah Index was launched. The index consists of 48 stocks that are both FTSE ST All-Share Index constituents and Shariah-compliant. These stocks meet business activity and financial ratio screens created by Yasaar Limited.
Of the 48 index stocks, nine of them are real estate investment trusts (REITs). A report by the Singapore Exchange showed that those nine REITs had an average dividend (or distribution) yield of 6.7%, as of 9 October 2018. Let’s take a closer look at four of the nine REITs, which all have above-average distribution yields.
Taking the top spot is EC World Real Estate Investment Trust (SGX: BWCU) with a distribution yield of 8.6%. The REIT owns seven properties located mostly in one of the largest e-commerce clusters in the Yangtze River Delta, China. The assets are largely used for e-commerce, supply-chain management and logistics purposes. For the REIT’s 2018 second-quarter, distributable income and distribution per unit (DPU) inched up by 3.1% and 1.9% respectively year-on-year.
Sabana Shariah Compliant REIT (SGX: M1GU) slots into the second place with a distribution yield of 7.7%. The trust invests in properties used for industrial purposes in line with Shariah investment principles. Sabana REIT currently has a portfolio of 19 properties in Singapore in the high‐tech industrial, warehouse and logistics, chemical warehouse and logistics, and general industrial sectors.
Recently, Sabana Shariah Compliant REIT announced the divestments of two properties at Tuas and Tai Seng for a total amount of S$110.78 million. The sales would improve the REIT’s distribution per unit, gearing and occupancy.
Coming in third with a distribution yield of 7.5% is ESR-REIT (SGX: J91U). The REIT will be merging with Viva Industrial Trust (SGX: T8B) after receiving the green light from its unitholders. The merger would create Singapore’s fourth-largest industrial property trust. ESR-REIT has a portfolio of 47 properties located in Singapore, with a property value of S$1.7 billion. Viva, on the other hand, has nine industrial and business park properties in our city-state with a valuation of some S$1.3 billion.
AIMS AMP Capital Industrial REIT (SGX: O5RU) takes the final spot with a distribution yield of 7.4%. The REIT has 26 industrial properties – 25 of which are located in Singapore and one is in Australia – with a total value of S$1.2 billion. For the trust’s first quarter ended 30 June 2018, distributable income rose 7.1% year-on-year while DPU was flat.
The Foolish takeaway
High distribution yield alone should not be the only factor used when investing in REITs. Investors should also look at the sustainability of the distributions. As an example, AIMS AMP Capital Industrial REIT sports a distribution yield of around 7%, but its DPU has been on a downtrend since its 2016 financial year.
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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 shares of Singapore Exchange Limited. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited.