In the past two years, Singaporean Real Estate Investment Trusts (S-REITs) have become an excellent income source for many wise Singaporean investors. In the last two years from the pandemic’s onset, REITs have become an effective source of income with enormous investor returns in both share value and dividend yields.
Any investor wishing to venture into REITs will want to know how REIT managers the funds, the REIT portfolio details they need to know, and other components that will help them make excellent investment decisions in the S-REIT market. Here’s a short post to help you get started.
What Are REITs and How Do They Work?
REITs are often publicly traded on a national stock exchange. Because REITs are required to distribute at least 90% of their income to shareholders, they offer one of the most tax-advantaged ways for individual investors to invest in real estate.
Singapore real estate investment trusts (S-REITs) operate in the same way and are under the regulation of their respective exchange under the Securities and Futures Act.
Find out the best REITs in Singapore now.
The Major Differences Between REITs and Dividend Stocks
REITs and dividend stocks in any exchange worldwide have various differences discussed below.
Focus and Diversification Methods
The focus of REITs when making investments is primarily on income-producing properties, such as apartments, office buildings, and shopping malls. These properties are typically income-producing in nature and provide cash flow for the company.
The focus of dividend stocks for investment portfolios is to provide a return on investment through dividends paid to shareholders. Dividend stocks can come from any sector and do not concentrate on real-estate investments alone. A diversified set of dividend stocks gives investors extra income and the right to attend annual general meetings (AGMs) of specific companies.
Inflation Hedges
Inflation is defined as a general rise in the prices of goods and services over time. REITs have traditionally protected investors from inflation as rents are typically fixed and have to be raised to keep up with inflation.
Owners of stocks that pay dividends can take the cash they receive from a company as they wish. This could be to spend on goods or services now. When these goods or services have increased in price, so will the dividend.
Returns
It depends on the timeframe and the volatility of the stock. It’s possible that during one year, an average return on a REIT is 6.6%, while the average return on a dividend stock is 5.3%.
The factors affecting REIT return rates are its financial policies, geographical locations, economic conditions in property areas, and property types the REIT prefers, to name a few.
Alternatively, the factors affecting dividend stock profitability include the stock’s dividend and earnings yield, growth rate, and payout ratio.
Singapore REITs With The Highest Yields in Singapore
1. United Hampshire US REIT
- Free Cash Flow: USD 24.61 million
- Debt-to-Equity Ratio: 0.640
- Current Ratio: 2.211
- Quick Ratio: 2.007
- Return On Equity(%): 4.09
- Return On Assets (%): 2.57
Last year, United Hampshire US REIT had an enormous dividend yield of 9.0%, leading against other similar REITs during the same period. The REIT is run by a team of managers from UOB Global Capital LLC and Hampshire U.S. Holdco, LLC, which is a subsidiary of the Hampshire Sponsor.
2. Sabana REIT
- Free Cash Flow: S$25.14 million
- Debt-to-Equity Ratio: 0.366
- Current Ratio: 0.144
- Quick Ratio: 0.062
- Return On Equity (%): -7.44
- Return On Assets (%): -4.44
Sabana REIT has a portfolio of 18 properties situated in Singapore and focuses on new-tech industrial properties and chemical logistics and storage in addition to its general industrial sector property investing. The REIT is a Sharia-compliant industrial REIT that focuses on industrial property investment with a focus on its religious anchor.
Sabana had a great year with a huge dividend yield of 8.6% previously.
3. Sasseur REIT
- Free Cash Flow: S$88.40 million
- Debt-to-Equity Ratio: 0.454
- Current Ratio: 1.250
- Quick Ratio: 1.139
- Return On Equity (%): 4.32
- Return On Assets (%): 2.59
Sasseur REIT invests in retail properties in China, namely in the cities of Chongqing, Bishan, Kunming, and Hefei. The total value of its assets is about S$1.7 billion. It’s the first REIT to list itself in Asia’s outlet mall sector. Many investors in Sasseur REIT saw an enormous dividend of 8.3% recently.
4. Elite Commercial REIT
- Free Cash Flow: GBP 21.61 million
- Debt-to-Equity Ratio: 0.469
- Current Ratio 2.661
- Quick Ratio 2.639
- Return On Equity (%): 15.25
- Return On Assets (%): 7.40
Elite Commercial REIT focuses on investing and managing commercial properties across the United Kingdom and its various cities. The UK-based REIT has over 155 commercial properties in London, North West, Midlands, Yorkshire and Humber, Scotland, Wales, and other cities. Its investors enjoyed an 8.1% dividend yield previously.
5. Keppel Pacific Oak US REIT
- Free Cash Flow: USD 48.28 million
- Debt-to-Equity Ratio: 0.600
- Current Ratio: 0.888
- Quick Ratio: 0.885
- Return On Equity (%): 7.42
- Return On Assets (%): 4.23
Keppel Pacific Oak US REIT has 15 various commercial and office properties across the United States with a total asset under management valuation of USD 1.46 billion. These 15 properties are 91.9% occupied, giving investors confidence about its future returns and capabilities. Keppel Pacific Oak US REIT has properties in Seattle, Sacramento, Dallas, Austin, Atlanta, and Houston. As a last note, its investors enjoyed a 7.9% dividend yield in the previous year.
6. Mapletree Industrial Trust
- Free Cash Flow: S$236.71 million
- Debt-to-Equity Ratio: 0.488
- Current Ratio: 0.521
- Quick Ratio: 0.168
- Return On Equity (%): 4.41
- Return On Assets (%): 2.84
Mapletree Industrial Trust focuses on the technology sector and is part of the Main Board of SGX. Its income-producing real estates are data centers spread beyond Singapore. The REIT’s properties have a total valuation of S$8.6 billion with over 86 properties in Singapore and 57 properties in North America. It recently had a dividend yield of 4.65%
| S-REITs With Double-Digit Increases and Yields Above 7% | Stock Code | Sector | 12M Total Return | Dividend Yield |
| United Hampshire US REIT | ODBU | Retail | 32.5% | 9.0% |
| Sabana REIT | M1GU | Industrial | 38.2% | 8.6% |
| Sasseur REIT | CRPU | Retail | 19.7% | 8.3% |
| Elite Commercial REIT | MXNU | Office | 13.9% | 8.1% |
| Keppel Pacific Oak US REIT | CMOU | Office | 26.4% | 7.9% |
| Mapletree Industrial Trust | ME8U | Office | 14.5 | 4.65% |
6 Crucial Components of High-Performing Singaporean REITs
In choosing the items in this list that serves as criteria for choosing the highest-performing S-REITs, these six crucial factors were used.
1. Economic Outlook
It is important to understand how the economy is affecting REIT returns, and how that behavior can be expected to change in the future. If a particular country’s economy has increased, then REIT returns will most likely increase. Otherwise, REITs can hedge against these by rising in value during inflation despite a possible drop in real-estate demand.
2. Dividend Yield and Payout Frequency
Dividend yield and its payout frequency can be important for investors who are risk-averse and want to balance their portfolios between different assets. By allocating more to stocks that provide a higher dividend yield, they’re aiming for a sizeable annual payout.
3. Interest Rates
Interest rates affect REIT value and potential of return by impacting their cost of borrowing, ability to generate income and equity, and ability to reinvest these earnings. High-interest rates can increase the cost of debt and reduce the potential for return, while low-interest rates can result in poor income generation and decreasing equity.
4. Weighted Average Lease Expiry (WALE)
Weighted average lease expiry (WALE) is the weighted average of all of the lease expiries on a company’s balance sheet. A company’s WALE is calculated by multiplying the number of years remaining on a lease by the present value of lease payments, then dividing by the total number of leases.
5. Net Asset Value (NAV)
The net asset value is the total value of a fund’s assets minus liabilities. The formula for NAV is assets minus liabilities. The REIT’s total NAV indicates the value of the property that the REIT owns.
6. Funds From Operations (FFO)
FFO is a metric used to measure a REIT’s cash flow from operations, excluding non-cash depreciation and amortization and less the effects of changes in assets held for sale.
What Is a Great Method to Build High-Yield Portfolios?
The real estate industry has faced many challenges, some of which are from the economy and others caused by regulatory changes. The industry is also in need of new ideas that can allow it to be more competitive. One idea for this is diversification. Diversification can help increase REIT profitability by diversifying their investment portfolio to make it more secure.
For example, you can choose to use Parkway Life REIT and Digital Core REIT, two historically-renowned REITs, in addition to these six choices for effective diversification. The varied property asset class will help increase your portfolio’s value over time.
Our Final Thoughts
A Singapore REIT is a great investment if you’re into real estate but wish not to own or maintain actual properties. It’s a great hedge against economic downturns and inflation. Lastly, real estate has historically increased in value over time, making S-REITs great investments.
Key Takeaways
- REITs are real-estate investment trusts that operate similarly to unit trusts
- REITs own various properties across Singapore and the world
- S-RETs are Singapore REITs focused on purchasing and managing properties in Singapore
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