Real estate investment trusts (REITs) have always been one of the favourite investment choices for risk-averse investors due to its stable earnings qualities and this is particularly true in Singapore where many REITs are listed. Though REITs are generally more stable investment vehicles compared to companies, they don’t usually deliver ridiculously high returns to investors either. Slow and steady is the best way to describe these type of investments.
Occasionally, however, we might get opportunities to purchase these stable investments that result in unusually high returns. In this article, I’ll take a deeper look at one of these examples, namely Frasers Centrepoint Trust (SGX: J69U), or FCT. It’s a REIT with a property portfolio comprising of the following suburban retail properties in Singapore: Causeway Point, Northpoint City North Wing (including Yishun 10 Retail Podium), Anchorpoint, YewTee Point, Bedok Point, and Changi City Point. It also holds a 31.15% stake in Hektar Real Estate Investment Trust, a retail-focused REIT in Malaysia.
There are two parts to FCT’s investment returns, which are dividends and share price appreciation. We will look at them individually.
To start with, FCT has consistently paid out dividends over the decade. From 2009 to 2018, distribution per unit (DPU) grew from 7.51 cents to 12.015 cents. Cumulatively, investors who held FCT shares during the decade would have received 103.444 cents in dividends. Based on FCT’s share price of about S$0.86 (as off a decade ago), an investor would have received a total return of 120%.
Next, we will look at FCT’s share price changes during the period. Based on today’s price of S$2.66 (as of the time of writing) and the price of S$0.86 at the beginning of the decade, investors who held FCT’s stock would have enjoyed a 209% return during the period. The change in FCT’s shares reflects both an improvement in valuation, as well as growth in business performance over the decade. Comparatively, the Straits Times Index (SGX: ^STI) gained about 43% during this period.
Putting both parts together, investors would have gained roughly 329% in total returns just by holding FCT stock.
In general, REITs are perceived as low-risk investments that do not generate market-beating returns. Yet, a combination of a high-quality REIT and an attractive purchase price can still give investors returns that comfortably beat the market over the long term.
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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 Frasers Centrepoint Trust.