The Motley Fool

1 Singapore REIT That Could Double Your Investment in the Next 5-7 Years

Real estate investment trusts (REITs) have always been one of the favourite investment options for conservative investors due to its stable earnings qualities, as well as its high earnings distribution ratio.

In this article, I’ll share with investors one REIT that is well positioned to double their investment in the next few years. The candidate? First Real Estate Investment Trust (SGX: AW9U). Let me explain why.

Introduction

First REIT 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 sponsors are PT Lippo Karawaci Tbk and OUE Lippo Healthcare Limited.

So how can First REIT deliver a 100% return in the next five to seven years? The answer is through dividend income, as well as potential improvement in its valuation. Let’s get stuck into some numbers below.

Dividend income

First off, investors in First REIT will receive dividends from the REIT in the foreseeable future, especially given its solid distribution track record. Here are some key figures:

  • From FY2008 to FY2018, First REIT grew its distribution per unit (DPU) from 3.39 cents (adjusted for the right issues in 2010 of 5 shares for every existing 4 shares) to 8.60 cents.
  • If we assume that First REIT can sustain its DPU at 8.60 cents in the next five years, investors will receive about 43 cents in dividends over this period.
  • At its current unit price of S$1.06, this translates to a total return of around 40%.

Note here that I’ve been conservative and excluded growth in the DPU. Yet, based on its historical performance, investors will be expecting First REIT to grow its DPU over time.

Valuation expansion

Another way for First REIT to deliver investment returns to investors is through valuation expansion. In this case, we are talking mainly about distribution yield as the main metric for valuation.

Presently, First REIT is trading at a distribution yield of about 8.1% (based on its current unit price of S$1.06 as of writing). Comparatively, the market average yield for the 41 listed REITs in Singapore is about 6.3%. In other words, investor sentiment for First REIT is rather negative at the moment.

Going forward, there is a possibility that investors might turn less negative on First REIT. Should that happen, it’s probable that First REIT’s share price will revert towards the average yield of about 6%. If that happens, its unit price could easily appreciate by 30-40% from its current price of S$1.06.

Conclusion

In sum, First REIT’s investors are well positioned to generate above-average returns in the next few years through dividend income, as well as capital appreciation. Here, we assume that investors buy units in First REIT at about S$1.06, or less.

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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 First Real Estate Investment Trust.