There are 9 REIT in Singapore with a combined market capitalisation of S$11.2 billion are included in the newly launched FTSE ST Singapore Shariah Index. The property assets of the REITs, span industrial, e-commerce, commercial and retail space. The nine REITs average an indicative distribution yield of 7.57%.
The FTSE SGX Shariah Index Series, launched by FTSE Group and the Singapore Exchange (SGX), reflects the stock performance of companies in the Asia Pacific region whose business activities comply with Islamic Shariah Law. The FTSE SGX Asia Shariah 100 Index is the first in the series to be launched. Independent screening is carried out by Yasaar Ltd, an organisation with a global network of expert Shariah scholars. The screening approach is described below.
Business Activity Screening
Initially, companies involved in any of the following activities will be filtered out as non-Shariah compliant:
- Conventional finance (non-Islamic banking, finance and insurance, etc.)
- Pork-related products and non-halal food production, packaging and processing or any other activity related to pork and non-halal food
- Entertainment (casinos, gambling and pornography)
- Tobacco; weapons, arms and defence manufacturing.
Financial Ratios Screening
The remaining companies are then further screened on a financial basis. The following financial ratios must be met for companies to be considered Shariah-compliant:
- Debt is less than 33.333% of total assets
- Cash and interest bearing items are less than 33.333% of total assets
- Accounts receivable and cash are less than 50% of total assets
- Total interest and non compliant activities income should not exceed 5% of total revenue.
More details on procedures for when companies that change financial compliance between two successive quarters in addition to the appropriate purification of dividends can be found here.
About Yasaar Limited
Yasaar Limited scholars represent all of the major Shariah schools of thought, creating a best practices approach that has credibility across the Islamic world. More information on Yasaar Limited is provided below or visit their website. For further details on the Shariah screening methodology, please refer to the FTSE Shariah Global Equity Index Series Ground Rules which are available here.
If you would like to build a Shariah Compliant REIT portfolio for passive income, you may contact firstname.lastname@example.org for more more detail (advisory fee applied).