Real estate investment trusts, or REITs, are popular investment choices in the Singapore stock market. That’s because REITs tend to have high dividend yields (technically, a REIT’s dividend is known as a distribution – but let’s not split hairs here!) due to their need to distribute up to 90% of their taxable income to unitholders in order to enjoy tax transparency. In this article, I want to three REITs with distribution yields of over 7% right now: Frasers Commercial Trust (SGX: ND8U), First Real Estate Investment Trust (SGX: AW9U), and Soilbuild Business Space REIT (SGX: SV3U). Source: SGX Stock Facts Next…
Real estate investment trusts, or REITs, are popular investment choices in the Singapore stock market. That’s because REITs tend to have high dividend yields (technically, a REIT’s dividend is known as a distribution – but let’s not split hairs here!) due to their need to distribute up to 90% of their taxable income to unitholders in order to enjoy tax transparency.
In this article, I want to three REITs with distribution yields of over 7% right now: Frasers Commercial Trust (SGX: ND8U), First Real Estate Investment Trust (SGX: AW9U), and Soilbuild Business Space REIT (SGX: SV3U).
Source: SGX Stock Facts
Next up we have Frasers Commercial Trust, a REIT that focuses primarily on commercial properties. It currently has ownership stakes in six commercial properties located in Singapore, Australia, and United Kingdom. Its properties in Singapore are China Square Central and Alexandra Technopark.
Frasers Commercial Trust’s latest earnings update was for the fourth quarter of its financial year ending 30 September 2018 (FY2018); the reporting period was for the three months ended 30 September 2018. For the reporting quarter, Frasers Commercial Trust experienced a 15.2% year-on-year decline in gross revenue to S$32.5 million, and a 19.2% fall in net property income to S$21.6 million. However, distribution to unitholders grew by 10.4% to S$21.4 million. Still, the REIT’s distribution per unit (DPU) dipped by 0.4% to 2.40 cents.
The REIT attributed its lower net property income to lower occupancy rates for its Singapore properties, one of its Australian properties (Central Park), and another Australian property (55 Market Street) that was sold on 31 August 2018. A weaker Australian dollar compared to the Singapore dollar also played a role, as did the aforementioned sale of 55 Market Street.
In its latest earnings update, Frasers Commercial Trust also shared useful comments on the state of the various property markets in Singapore that it is in. Singapore accounted for 54% of the REIT’s total asset values in the reporting quarter. Here are the comments:
“For the office market, CBRE reported that overall leasing activity was stronger in 3Q 2018, leading to stronger growth in net absorption to 605,077 square feet for the quarter. This led to a reduction in island-wide office vacancy rate by 0.5 percentage points from 5.9% in 2Q 2018 to 5.4% in 3Q 2018. As at end 3Q 2018, average rents increased 3.5% qoq to S$10.45 per square feet (“psf”) per month for Grade A CBD Core, 2.6% qoq to S$8.00 psf per month for Grade B CBD Core and 2.8% qoq to S$7.45 psf per month for island-wide Grade B. According to CBRE, there was a steady increase in demand for Grade B offices as the available Grade A space tightened considerably. CBRE is of the opinion that the resilient and diverse tenant demand coupled with a limited future supply will lead to further rental growth in the medium term.
For the business park market, CBRE reported that there continued to be demand for city fringe business park space in 3Q 2018, while leasing activity for the rest of the island was weaker. Leasing activity during the quarter was mainly attributed to e-commerce and technology firms with some tenants seeking expansion space, which benefitted mainly better located and newer business park developments. As at the end of 3Q 2018, average rent increased 1.8% qoq to S$5.80 psf per month for city fringe business parks and 1.3% qoq to S$3.80 psf per month for the rest of the island. CBRE is of the opinion that strong office market recovery had widened the gap between the business park and office rents, which has led to higher rent expectations for business parks.”
Next up is First REIT, which currently has a portfolio of 20 properties (16 in Indonesia, three in Singapore, and one in South Korea) that are mostly healthcare-related facilities. The REIT’s sponsor is Indonesia’s largest listed property company, PT Lippo Karawaci Tbk.
For the quarter ended 30 September 2018, First REIT reported that its gross revenue increased by 5.1% year-on-year to S$29.24 million while its net property income grew 5.4% to S$28.94 million. The improvements were primarily driven by Siloam Hospitals Buton, Lippo Plaza Buton, and Siloam Hospitals Yogyakarta, which were all acquired in the fourth quarter of 2017. Higher rental income from First REIT’s existing properties also played a role. First REIT’s higher top line led to its distribution per unit (DPU) coming in 0.5% higher than a year ago at 2.15 cents.
Investors may want to note that OUE Lippo Healthcare Ltd (SGX: 5WA) announced in mid-September that it is acquiring a 10.63% stake in First REIT. OUE Lippo Healthcare also proposed to buy a 40% stake in Bowsprit Capital Corporation Limited, First REIT’s manager. The remaining 60% will be purchased by OUE Lippo Healthcare’s parent, OUE Ltd (SGX: LJ3). First REIT’s sponsor, Lippo Karawaci has close ties to the two OUE entities.
In its latest earnings update, First REIT shared the following useful comments on the state of Indonesia’s healthcare market (First REIT’s largest geographical market is Indonesia):
“The Indonesian economy registered its fastest quarterly growth in four and a half years with its gross domestic product increasing 5.27% yoy in the second quarter of 2018, beating its first quarter’s growth and consensus estimates. This was mainly driven by robust consumption during the Muslim fasting month. The Indonesian Rupiah has continued to face selling pressures amidst rising US interest rates and fears of market contagion from Turkey and Argentina. To counter the Rupiah depreciation, Bank Indonesia has intervened in the foreign exchange markets, raised import taxes and also increased interest rates several times during the year, with the latest on 27 September 2018, bringing interest rate to 5.75%. President Joko Widodo has announced Indonesia’s growth forecast for 2019 to be 5.3%, driven by stronger domestic consumption, investment and exports, and supported by a stronger spending push planned for 2019.
Private healthcare demand will continue to see support from the growing nationwide adoption of the national health insurance scheme and healthcare spending in Indonesia has been projected to rise to Rp1,224 trillion by 2027. First REIT continues to be well-positioned to benefit from this trend with its right of first refusal to Lippo Karawaci’s healthy pipeline of hospitals in Indonesia.
Subject to the completion of the proposed acquisition of Bowsprit by OUELH from Lippo Karawaci, First REIT will also have access to OUELH’s growing portfolio of healthcare and/or healthcare-related assets across PanAsia.”
Victor Tan, the CEO of First REIT’s Manager, also shared some thoughts in the earnings update on the new growth opportunities that First REIT may have due to OUE Lippo Healthcare and OUE entering the picture:
“The proposed acquisition of Bowsprit by OUE Lippo Healthcare Limited will be one of our growth drivers. First REIT will then be able to access a more diversified pool of assets via the right of first refusal agreements granted by both OUE Lippo Healthcare Limited and PT Lippo Karawaci Tbk for their portfolios. This will effectively expand First REIT’s geographical catchment within Asia, allowing the Trust to potentially pursue more yield-accretive acquisitions to deliver stable returns to our Unitholders.”
Lastly, we have Soilbuild Business Space REIT. As a quick introduction for better context later, Soilbuild Business Space REIT invests primarily in business parks and industrial properties in Singapore. The REIT’s portfolio in Singapore includes properties such as Solaris, West Park BizCentral, Eightrium @ Changi Business Park, and more.
In its latest quarterly earnings update, Soilbuild Business Space REIT announced that gross revenue for the reporting quarter declined by 3.6% year-on-year to S$19.8 million while net property income fell by 8.8% to S$16.2 million. Similarly, its distribution per unit (DPU) sank by 9.4% to 1.245 cents. The weak performance was driven by the divestment of KTL Offshore and lower contributions from West Park BizCentral and Eightrium. These negatives were offset partly at growth at Solaris.
“Based on advance estimates, the Singapore economy grew by 2.6% on a year-on-year (“y-o-y”) basis in the third quarter of 2018, easing from the 4.1% growth in the previous quarter. On a quarter-on-quarter (“q-o-q”) seasonally-adjusted annualised basis, the economy expanded by 4.7%, faster than the 1.2% growth in the preceding quarter.
The manufacturing sector grew by 4.5% y-o-y in the third quarter of 2018, slower than the 10.6% growth in the previous quarter. Growth was supported mainly by output expansions in the electronics, biomedical manufacturing and transport engineering clusters. On a q-o-q seasonally-adjusted annualised basis, the manufacturing sector expanded at a faster pace of 7.6% compared to the 2.9% growth in the preceding quarter.
Singapore’s manufacturing activity continued to expand in September 2018 but at a slower pace, with the Purchasing Managers’ Index (“PMI”) falling to 52.4. PMI for the electronics sector posted a reading of 51.4.
Rentals of all industrial properties fell by 1.4% and 0.1% in 2Q 2018 y-o-y and quarter-on-quarter respectively. The multi-user factories, single-user factories and warehouse rental indices have receded 0.7%, 4.2% and 3.8% y-o-y respectively, whilst business park rentals expanded 5.3% y-o-y. In 2Q 2018, vacancy rate for all industrial space rose 0.3 percentage points q-o-q largely due to a 0.5 and 0.4 percentage points increase in multiple-user and warehouse vacancy rates respectively.”
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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. The Motley Fool Singapore has a recommendation for First Real Estate Investment Trust.