How to Invest in Singapore REITs

August 4, 2011

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It was recently reported that Far East Organization, a leading Singapore real estate developer, was planning to raise more than S$500 million via a Real Estate Investment Trust (REIT) by listing some of its hotel and serviced apartment assets next year.

Indeed Singapore’s REIT market has been growing with a number of new listings despite the volatile market as investors are attracted to the prospect of the stable yields that these securities can provide. In this article we’ll examine what REITs are, the type of yields you can get from them and their performance, and what to look out for when investing in them.

What are REITs?

A REIT is a tax-advantaged corporate vehicle that is used to provide a real estate investment structure that can accommodate a wide variety of investors, similar to what mutual funds do with stocks. In this way even a retail investor can get exposure to real estate with just a small outlay. REITs are usually required to pay out more than 90% of their taxable investors as a distribution to investors.

There are currently around 27 REITs and Business Trusts with real estate exposure listed in Singapore, with a market cap of around S$40 billion. Singapore REITs (S-REITs) are a relatively recent phenomenon with the first one (CapitaMall Trust) listed in July 2002.

What sort of yields can you get from Singapore REITs (S-REITs)?

On average the S-REITs are trading at about 6% yield, but they range from 4+% to 9+%. At the lower end of the yield range are the “blue chip” names such as CapitaCommercial Trust and CapitaMalls Trust, which tend to be large, liquid and have ownership of a large portfolio of quality assets. For example, CapitaMall Trust’s assets include Plaza Singapura, IMM, Bugis Junction and Tampines Mall. At the higher end of the range are the smaller and riskier names such as AIMS and Cambridge Industrial Trust.

In general office and retail REITs tend to trade at lower yields than industrial and logistics REITs as their rental income stream tends to be more stable and less volatile, especially during economic downturns.

From a capital gains perspective, so far this year the S-REITs as a whole have been relatively flat, with the retail names such as Starhill Global and Frasers Centrepoint slightly outperforming, and the office names such as Capitacommercial Trust and and KREIT Asia slightly underperforming.

What should you take note of when investing in REITs?

Before you start investing in REITs, there are several issues you need to take note of:

1. Composition of REIT assets

REITs are typically classified according to the type of assets they are comprised of: retail (i.e. shopping malls), office, industrial, diversified or specialized such as hotel or healthcare REITs. Each type of asset has its own characteristics and have different drivers that will determine how they perform. For example, how well a hotel REIT performs depends on the number of tourist arrivals.

2. Geographic diversification and currency risk

REITs are not just comprised of different types of assets, but these assets could also be located in different countries, such as Singapore, Hong Kong, Indonesia, China, and Japan. If the REIT does not hedge this currency exposure, then the investor could be exposed to currency risk, so a strong Singapore dollar could lead to translation losses when the overseas incomes are converted back to pay the dividend.

3. Growth of Dividend Per Unit (DPU)

A good REIT will not only have a high and stable yield but one that is also growing over time. The main source of a REIT’s income is rental, and so you have to also consider how that rental will grow over time. This will depend on factors including GDP growth, and also what sort of rental increases are built into the lease contracts.

4. Spread over 10 year Government Bond yield

If REITs are trading at yields that are too close to the Government Bond yield (which is risk free), then the investor might not be being compensated sufficiently for that risk. The bigger the yield spread that REITs are trading over Government Bonds, the more potentially attractive they are.

5. Gearing

REITs are allowed to borrow up to 35% of their total assets without a credit rating from a major rating agency. If REITs are heavily geared (leveraged) this creates a risk that they may run into serious problems if financing becomes an issue, as we saw during the Great Financial Crisis. Also any potential acquisitions that they do have to be done through raising equity (e.g. through a rights issue) instead of just borrowing more to pay for it.

REITs are a good way to get exposure to a diversified portfolio of commercial properties and to enjoy an attractive dividend yield, but do not come without investment risks. Please do your homework before investing!

by Propwise.sg on August 4, 2011 · 31 comments

Posted in Investing in Singapore Property

{ 25 comments… read them below or add one }

Choosy April 3, 2012 at 4:33 pm

Hi,may i know the procedure of investing R.E.I.T.S.
Thank You.

Reply

Propwise.sg April 9, 2012 at 5:46 pm

Hi Choosy, you can buy them just as you would buy any other stock listed on the SGX. You will need to set up a broker and a CDP account to trade stocks.

Reply

Jasmine July 14, 2012 at 3:07 pm

Hi, I would like to know, are there other avenues to buy stocks and REITS apart through a broker? How do you set up a CDP account on your own?

What are the pros and cons ofgoing through a broker as well as pros and cons of doing it yourself?

Reply

Propwise.sg July 14, 2012 at 3:58 pm

Hi Jasmine, no you must go through a broker to buy stocks.

Reply

Tah April 25, 2012 at 1:32 am

Hi. I would like to enquire about CMT invesment. How much is to the minimum that one needs to invest in CMT? As I have never invested before may I also know how much is the brokerage charge etc. Wat is a good way to learn how to start. Thanks.

Reply

Propwise.sg May 14, 2012 at 11:26 am

Hi Tah, usually the minimum investment is 1 lot or 1000 shares. You just have to buy it through a broker – you can visit the sites of DBS Vickers, Lim & Tan, Phillips Capital etc to find out more.

Reply

SERENA June 16, 2012 at 9:13 pm

I have $5000 cash only, is it possible to invest REITS?

Reply

Propwise.sg June 18, 2012 at 11:18 am

Hi Serena, yes it is. For example if the price of the REIT is $1 per share, buying 1 lot will cost you $1,000 plus some transaction costs.

Reply

jovin July 25, 2012 at 5:35 pm

Hi,
I have always been wanting to buy reits. But i have no idea when is the best time to enter, care to advise? is it possible to know when is the good price to enter without TA knowledge?

Reply

Propwise.sg July 26, 2012 at 10:15 pm

Hi Jovin, you should probably learn more about stock investing before taking the plunge, both fundamental and technical analysis.

Reply

Ivy August 25, 2012 at 7:29 am

I bought trust fund (UOB). But they did not bring me good returns. In fact, I lost 30% of my initial investment $ within 1 year. I want to buy some good funds that would promise good returns. Can you give me some good advice please? How to invest without having to pay 5% commission to the bank? Thank-you.

Reply

Propwise.sg September 4, 2012 at 11:17 am

Hi Ivy, you might want to look at buying ETFs or REITs directly instead of buying unit trusts. The fees are much lower.

Reply

Zac September 30, 2012 at 1:25 am

Hi, does REIT provides dividends for its investors? I heard it does? Or the yields simply represents the dividends. If it does give dividends, how?

Reply

Propwise.sg October 15, 2012 at 5:55 pm

Hi Zac, it is just like any other stock you buy listed on SGX.

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James Carstairs September 30, 2012 at 2:34 pm

What do you think of the Ascott Reit as a investment? Im quite bullish on serviced apartments but the price has gone from 40 cents to 1.20 🙂 Is it more important to look at dividend yield then capital appreciation?

Reply

Weil October 3, 2012 at 11:08 pm

Hi, I’m a total newbie here.
First question: How to do actually get down to buying some REITS? Sorry for this basic question..

Reply

Propwise.sg October 15, 2012 at 5:56 pm

Hi Weil, buying a REIT is just like buying any other stock, which you do via a broker.

Reply

Tommy November 10, 2012 at 6:55 am

Hi everyone, I am a newbie here. I am interested with REIT but don’t know which one to invest to. I recently come to know about Phillip Singapore Real Estate Income Fund, by Phillip Capital Management. It is basically a unit trust that invest in REIT, instead of stock.

Is it a good idea to invest in this fund/unit trust compared to buy REIT directly ?

My concern with this Fund, is that it basically double the unit trust management fee. It has fee from the REIT and fee from the fund/unit trust, which may makes the actual yield we receive become lower.

Reply

Propwise.sg November 26, 2012 at 8:42 pm

Hi Tommy, unless you have a very small amount of money to invest (i.e. <$5,000), why not just buy a basket of REITs yourself instead of paying even more management fees?

Reply

goh December 25, 2012 at 7:14 pm

Hello,
Are the dividends in the form of cash?

Can I opt to reinvest the dividends back into the REIT when it is paid out? How do I do that?
Thanks,

Reply

Propwise.sg January 13, 2013 at 10:35 pm

Yes. Some REITs have dividend reinvestment plans. You’ll have the option to opt-in once you have invested.

Reply

Wilbert April 1, 2013 at 10:41 am

Hi,
If buying a REIT is just like buying stocks, with the many indexes in the market, how will I know if this is a REIT? Is there a list of REIT we can choose from?

Thanks

Reply

Propwise.sg April 15, 2013 at 11:12 pm

You can find a list here: http://reitdata.com/

Reply

Don November 28, 2013 at 12:33 am

Hi,
I am a totally newbie, I was told that I can start investing Capitamall REITS for the amount of $800 is that true?

Reply

Propwise.sg December 12, 2013 at 10:10 pm

Hi Don, not sure how you can do that. The minimum lot size is 1000 shares which at current prices is around $1850 + brokerage commission.

Reply

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