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2 Billion-Dollar REITs Paying More Than 3 Times the Fixed Deposit Rate

One of the most popular investment vehicles in the Singapore market is the real estate investment trust (REIT). This is due to the defensive nature of such real estate and also the high-income payouts to unitholders (in the form of distributions).

Moreover, in a low-interest rate environment where our fixed deposit rate offers less than 2%, REITs become a rather attractive alternative. In this article, I’d like to share with you two billion-dollar REITs that are trading at a yield of above 6% – more than three times what you would receive from a fixed deposit.

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REIT #1

The first REIT on the list is ESR-REIT (SGX: J91U). As a quick introduction, ESR-REIT invests in industrial real estate, and currently has a portfolio of 57 properties located across Singapore. The REIT recently completed its merger with Viva Industrial Trust. This contributed positively towards its recent quarterly results.

Here are some numbers from its third-quarter results: Gross revenue surged by 92.9% year-on-year to S$64.8 million while net property income improved by 104.2% to S$48.6 million. Similarly, distribution per unit (DPU) grew by 18.9% to 1.007 cents.

Mr Adrian Chui, Chief Executive Officer of ESR Fund Management, commented on the benefit of the merger:

“Following the successful merger, our portfolio has been integrated smoothly. Our financial and real estate systems and processes have been integrated to achieve a better operating platform while we continue to improve our human resource capacities. At the same time, our post-merger portfolio has also become more diversified and stable with reduced concentration risks and improved trading liquidity and coverage. In addition, our capital structure is more robust with longer debt tenors higher proportion of fixed-rate debt on a longer tenor and enjoys wider banking support. During this quarter, we continued on our plans to carry out rejuvenations and AEIs for several identified assets to ensure our portfolio is “future-ready” to meet the growing and changing demands of the “industrialists of tomorrow”.

So far, investors are probably not optimistic about ESR-REIT’s future, giving it a high yield of 7.6%. Thus, the REIT will need to demonstrate sustainable performance in the near future to convince investors of its merits.

REIT #2

The second REIT here is CapitaLand Retail China Trust (SGX: AU8U), or CRCT. As a quick introduction, CRCT is a Singapore-based REIT investing in retail real estate in China. The REIT’s shopping malls are located in China, Hong Kong, and Macau.

In the last five years, CRCT has seen its share price decline from about S$1.70 to S$1.56 today. Yet, the REIT has grown its DPU from 9.02 cents to 10.22 cents. In other words, its valuation is among the lowest it has been in the last five years.

Going forward, there are good reasons to expect solid performance from the REIT, especially since it operates in one of the fastest-growing retail markets – China. As a developing country, China offers significant opportunities for long-term investors to participate in its economic growth. In particular, CRCT will benefit from the growth of the economy and the rapid increase in personal consumption.

Conclusion

So there you go, two Singapore REITs that are trading at yields that offer investors more than three times the fixed deposit rate. Investors should be reminded, however, that a low price alone is not enough to justify a decision to invest. Thus, it is important investors carry out their research on the REIT’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. The Motley Fool Singapore has recommended shares of CapitaLand Retail China Trust.