Sunday, January 16, 2011

A Guide to Picking Singapore REITs

Land is scarce in Singapore as it is a tiny island nation. Therefore, property rentals are generally and historically high. The Singapore REIT market can be categorised into 5 main sectors - retail, office/commercial, industrial/logistics and healthcare. 


Benefits of investing in REITs:
- REITs allow investors be like "property owners" without the normal hassles of renovation, maintenance, repairs, security, collecting rental and dealing with difficult tenants. It is a more convenient way of property investment for small investors.


- REITs provides regular cash flow for investors. Most REITs in Singapore distribute dividends every quarter.


- REITs provides attractive annual yields (5% - 9%) compared to the embarrassingly-low interest rates of banks. 


However, not all REITs are of good, or even decent quality. Therefore, investors must be really selective. Otherwise, you might end up like the early investors of Saizen REIT during the sub-prime crisis in 2008/2009. I do not want to bore you with the depressing details. Basically, Saizen REIT's stock price plunged and it stopped distribution for a long period of time T T. It is recovering slowly now.


"The Saizen REIT saga" < Click Click 


REITs-picking Guide:
In order to help myself make the right decision while selecting REITs, I have a guide to picking REITs which I want to share with you all. Of course, feel free to make adjustments according to your personal preference ^^

1. Gearing of 30% - 35%


2. Yield 5% - 8%


3. Increasing DPU over the years


4. Stock price below or near NAV 


5. Type (retail, office/commercial, industrial/logistics and healthcare)


6. Geographical exposure (China, Singapore, Indonesia, Malaysia, Australia etc.)


Alright, let's put the REITs in my dividends portfolio to the test.

Suntec REIT:


1. Normal Gearing of 33% (excellent)
2. Yield of 6% (moderate)
3. Decreasing DPU (poor)
4. Stock price below NAV (excellent)
5. Type: Retail and Commercial (excellent)
6. Geographical exposure: Singapore (excellent)
Overall verdict: Moderate REIT


CapitalMall Trust:


1. High Gearing of 37% (poor)
2. Low Yield of 5% (moderate)
3. Stable DPU (moderate)
4. Stock price above NAV (poor)
5. Type: Retail and Commercial (excellent)
6. Geographical exposure: Singapore (excellent)

Overall verdict: Moderate REIT

CACHE:

1. Low Gearing of 23% (excellent)
2. High Yield of 8% (excellent)
3. Stable DPU (moderate)
4. Stock price above NAV (poor)
5. Type: Logistics (excellent)
6. Geographical exposure: Singapore (excellent)
Overall verdict: Excellent REIT

First REIT:

1. Low Gearing of 17% (excellent)
2. High Yield of 8% (excellent)
3. Stable DPU (moderate)
4. Stock price same as NAV (moderate)
5. Type: Healthcare (excellent)
6. Geographical exposure: Singapore and Indonesia (moderate)
Overall verdict: Excellent REIT


Parkway Life REIT:

1. Normal Gearing of 35% (excellent)
2. Low Yield of 5% (moderate)
3. Increasing DPU (excellent)
4. Stock price above NAV (poor)
5. Type: Healthcare (excellent)
6. Geographical exposure: Singapore and Japan (excellent)
Overall verdict: Excellent REIT

There is actually one more criterion when choosing a REIT - strong backing from parent company. However, I did not include this in my guide because this can be rather subjective.

So, what are your ways of choosing a REIT as investment? Feel free to share your thoughts and opinions by commenting below. ^^




Peace Out
Dividends Warrior

15 comments:

Anonymous said...

Should whether the management is lousy or excellent be considered too?

Anonymous said...

what is your rating of Cambridge Trust?

Anonymous said...

Hi,

May i know how do we calculate a REIT's "Gearing%" and whether the stock price is above "NAV" ? Where can we get the information from in order to derive the results for both of them?

Thanks

Alan said...

Hi DW,

May i know how do you derive at stock price below NAV (excellent) for Suntec REIT?. The NAV value is $0.91 in the prospectus but the stock price has been more than $1 ever since OCT 2009. Unless you bought it way before it went up to $1?

Alan said...

Sorry, i see wrongly. :(

Penny Stock Blog said...

I believe that real estate investment trusts are an excellent way to obtain a nice income stream. While at the same time gain from the increasing value of the brick and mortar buildings that the real estate investment trust holds.

cheese burger said...

bro, are you planning to write a new guide for 2012? interested to read as i am new to market. :). thanks

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Real Estate Investment Firms Dallas said...

Please follow above instructions before investment in the REITs.

Jack Li said...

wow, pretty accurate, your excellent rated REITs have improved significantly since 2011 while the moderate ones are, well, moderate.

Adolph thien said...

Hi,

I just jump into your blog. btw, what is stock price same as NAV? this is the only part that i don't understand. is that mean stock from the company below or higher than NAV reit? if the company do not have stocks but only reit? thanks for many reply. hope to hear you soon

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