Why are people talking about S-REITs? That’s because they provide stable dividend income, they are relatively easy to understand, and compared to actual real estate, they are highly liquid.
Getting to know S-REITs
S-REITs loosely stand for “Singapore Real Estate Investment Trusts”. When you invest in an S-REIT, your money is collectively pooled with that of other investors to invest in and acquire various real estate assets, usually according to a theme or sector specified by the REIT.
90% of a REIT’s distributable income goes to dividend payouts
S-REITs are also popular with investors for their high dividend payouts. Following the initial investment, these properties tend to be leased out to all sorts of tenants from various industries (again depending on the REIT’s investment mandate).
Most interestingly, however, REITs are structured such that after property-related expenses, fees and interest expense, which is usually the highest cost, 90% of the remaining distributable income will flow back to investors in the form of “income distribution”. According to DBS research, most S-REITs currently yield around 4% to 6% in dividends annually, giving investors a source of steady income, and also price appreciation from the S-REIT itself.
Some offer geographically diversified exposure
While S-REITs do give the impression that they are focused on Singapore, many of them have holdings outside of Singapore, with some of them having impressively diversified exposure. Mapletree Logistics Trust (MLT) for instance, offers exposure to over nine different territories.
Categories of S-REITs
The Singapore Exchange (SGX) currently lists 42 S-REITs and property trusts, making up around 12% of the entire stock market’s market cap. S-REITs tend to vary in their investment mandate or portfolio theme. Here are five common ways to categorise S-REITs.
Commercial
Commercial REITs mainly offer exposure to offices and similar workspaces. Interestingly, there has also been a small but growing distinction among commercial S-REITs, with some offering exposure to newer trends such as co-working spaces.
While many have written off office-related REITs thanks to work-from-home trends over the past year, S-REITs that focus on offices seem to be increasingly focusing on “de-centralised” offices away from the city centre, as well as standing to benefit from a relatively “K-shaped” economic recovery in Singapore — where output and employment in white-collar office jobs is currently recovering quicker than non-office jobs.
Healthcare
The only two healthcare REITs listed on the SGX are ParkwayLife REIT (PLife REIT) and First REIT. Healthcare REITs themselves are focused on investment in healthcare-related infrastructure, such as hospitals and medical centres.
For instance, PLife REIT owns relatively recognisable names such as Mount Elizabeth Hospital, Gleneagles, and the titular Parkway East Hospital — among more than 50 other healthcare-related properties spread among Singapore, Japan, and Malaysia. PLife REIT also does offer interesting exposure, such as to about 49 Japanese nursing homes.
Hospitality and lodging
Hospitality and lodging REITs invest in a range of hotels, resorts, serviced residences, resorts, purpose-built student accommodation, rental housing and multi-family assets. Their situation is thus fairly unique and many hospitality REITs accordingly have holdings that are more international than many of their other REIT peers. High exposure to the travel industry (and they are arguably part of the travel industry anyway) has seen hospitality REIT sentiment suffer over the past two years. However, with more international travel lanes opening and travel volumes continuing to rise, many will be keeping a close eye on these REITs for a recovery play.
Industrial
Industrial REITs invest in a range of industrial-related properties across a wide range of sectors, perhaps making them surprisingly diverse. For instance, some offer concentrated exposure to logistics facilities such as warehouses while others focus on data centres, business parks or factories.
Retail
Retail REITs mostly work by owning and running a range of malls, retail districts and other kinds of retail spaces. This class of REITs are uniquely vulnerable to disruption from e-commerce, which was only made worse during the Covid-19 pandemic.
Still, many retail-focused REITs have weathered the pandemic relatively well thanks to a range of factors such as government rental support and relief. However, the retail sector even pre-pandemic has been facing a range of issues such as:
Risks when investing in S-REITs
REITs tend to be vulnerable to interest rate risk — although this varies from REIT to REIT. One metric that many investors look out for is the gearing ratio, the ratio of total debt to its total assets. This is mainly used to assess the level of financial leverage of a REIT.
Pandemic trends such as working-from-home and e-commerce have accelerated the pre-pandemic disruption of many REITs. On the flip side, it has however seen higher investor interest in other kinds of REITs such as e-commerce and data centres.
Recession risks are higher than normal for REITs, given that many of them are exposed to the consumer discretionary sector — where consumers will scale back spending and consumption in case of a recession.
Eight S-REITs and trusts that have above-average* dividend yields
Manulife US Real Estate Investment Trust (MUST)
Dividend Yield: 7.50%
YTD Returns: –6.67%
MUST offers exposure to office-themed real estate in the US. They currently hold a total of nine prime, freehold and Trophy/Class A office properties, split amongst California, Georgia, New Jersey and Washington DC.
Keppel Infrastructure Trust (KIT)
Dividend Yield: 6.83%
YTD Returns: 0.00%
KIT holds a relatively diversified portfolio of eight Singapore-based properties, servicing mainly industrial-facing sectors including water desalination and treatment, power generation, piped gas production and retailing, petroleum storage.
Mapletree North Asia Commercial Trust (MNACT)
Dividend Yield: 6.66%
YTD Returns: +4.12%
MNACT gives investors exposure to a total of 12 properties spread across China, Hong Kong, Japan and South Korea. Its portfolio focuses on commercial (offices) and retail properties, and does include mixed-use developments as well.
ESR-REIT
Dividend Yield: 6.47%
YTD Returns: +20.00%
ESR-REIT invests in a total of 58 properties in Singapore, focusing on logistics/warehouses, business parks, general industry, and other related use cases. The REIT’s price has traded sideways for over a decade but may prove to be of interest to investors looking for higher-yielding REITs. In any case, the pandemic has seen the REIT attain better-than-pre-Covid secured lease, occupancy and tenant retention rates, which has already seen it beat the benchmark STI’s returns so far.
CapitaLand China Trust (CCT)
Dividend Yield: 6.26%
YTD Returns: –13.67%
As “Singapore’s largest China-focused S-REIT”, CCT currently holds a portfolio of 11 retail properties, and 5 business parks (made up of 83 buildings) across China in 11 provinces. The REIT has managed to retain high occupancy rates throughout the pandemic for both its retail and business park sectors and has seen encouraging improvements within retail traffic to its malls.
Starhill Global REIT (SG REIT)
Dividend Yield: 6.17%
YTD Returns: +25.49%
SG REIT also invests in retail and office spaces, with a total of 10 properties spread across Singapore, Australia, Malaysia, China and Japan. Around 62% of its revenue comes from Singapore through its large stakes in Wisma Atria and Ngee Ann City. Other core markets include three properties in Australia and two in Malaysia, and when combined with Singapore, make up 97% of the REIT’s total asset value.
OUE Commercial REIT (OUE-CREIT)
Dividend Yield: 5.98%
YTD Returns: +17.11%
OUE-CREIT owns a total of seven properties across Singapore and Shanghai, owning or having stakes in recognisable names such as the OUE Bayfront, One Raffles Place and components of Crowne Plaza hotel at Changi AirportThe REIT focuses on a mixture of prime office, retail and hospitality themes for its portfolio.
Suntec REIT
Dividend Yield: 5.65%
YTD Returns: +0.66%
Suntec REIT is one of the largest and older REITs in Singapore, with a 66.3% interest in the Suntec Singapore Convention & Exhibition Centre as well as one-third interest in a range of other properties — One Raffles Quay, Marina Bay Financial Centre (Towers 1 & 2), and the Marina Bay Link Mall. The REIT also holds a stretch of diversified interests in “key cities” in Australia as well as the UK, with its total holdings netting them $209.2 million in income for 2020 — just $27.5 million (–11.6%) lower than in 2019.
Mooris Tjioe is an investment analyst with Phillip Futures
Photo: Samuel Isaac Chua/The Edge Singapore
