Are REITs just for retirees?

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In our previous article “What are REITs?”, we shared about the types of asset classes and geographical breakdown of REITs listed in Singapore. In this next article of our #MUSTExplains series, where we share about REITs, the U.S. economy and the office sector, we discuss the reasons why people invest in REITs, and some risks to consider.

REITs may not be as exciting as tech stocks and cryptocurrencies, but here are four popular reasons why investors hold them :

  • Cost-effective way to invest in real estate: Direct property investment is more capital intensive and illiquid, while investing in REITs is more affordable and enables investors to grow their capital in a shorter period of time. It is also more liquid as investors can buy or sell units in a listed REIT on the stock exchange. Real estate is also known to be a hedge against inflation as their prices/rentals increase with inflation.
  • Total return investments: REITs typically provide high dividends and have the potential for moderate, long-term capital appreciation. Long-term total returns of REITs tend to be similar to those of value stocks and exceed the returns of banks’ fixed deposits and lower risk bonds.
  • Stable income stream: As REITs are required to distribute a minimum 90% of their income, their distribution yields tend to be higher than stocks or fixed deposits. SREITs average ~6% in dividend yields and have continued to generate substantial, stable yields through a variety of market conditions. This is why they are preferred by retirement savers and retirees who seek certainty and stability in their returns.
  • Diversification: The returns of REITs typically have a lower correlation with the returns of other equities and fixed-income investments. Investing in REITs thus helps to reduce a portfolio’s overall volatility and improve its returns for a given level of risk.

 

As with all investments, here are some possible risks when investing in REITs:

  • Market risk: REITs are traded on the stock exchange and their prices are subject to supply and demand conditions. Their prices generally reflect investors’ confidence in the economy, property market and interest rate outlook, among other factors.
  • Income risk: Many factors can affect a REIT’s rental income – for instance, when tenants renew at lower rentals or vacate their space. Therefore, look for stable occupancies, positive rental reversions, and contractual lock-ins of rental rates and other clauses in a REIT’s tenancy agreements to ensure income stability.
  • Leverage risk: If a REIT’s leverage limit approaches too close to the regulatory limit of 50%, it will limit the REIT’s financial flexibility to raise more capital through debt. Furthermore, additional expenses of borrowing such as interest payments and fees incurred in connection with the borrowing will reduce the money available for distribution to unitholders.
  • Refinancing risk: REITs may face higher refinancing costs when loans are due for renewal, or they may be unable to secure refinancing and resort to selling off properties if these assets are mortgaged under the loan. These risks could affect the unit price and income distribution of a REIT.

 

REIT Structure

Here’s a diagram of a typical REIT structure.

Besides the REIT vehicle, there are three external parties working in relation to it. All three parties are paid fees for their services.They are the:

  • i.     Trustee – Responsible for the ownership and safe custody of the REIT’s assets, they act on behalf of unitholders to ensure the REIT Manager complies with the law and performs its duties as laid out in the Trust Deed.
  • ii.    REIT Manager – It manages the REIT in the best interests of unitholders, which includes setting the REIT’s strategic direction, managing assets and liabilities, as well as making recommendations to the Trustee on the acquisition, divestment and enhancement of assets according to the REIT’s investment mandate.
  • iii.   Property Manager – It manages the day-to-day operations and maintenance at the respective properties.

 

Most SREITs also have Sponsors – typically but not necessarily property developers which inject properties into the REIT during listing. Many Sponsors continue to support the growth of the REITs by offering them rights to acquire a future pipeline of properties. Sponsors are often also major unitholders of the REITs they sponsor.

In the next article, we will discuss how to start investing in REITs and stocks. Stay tuned!

Sources:

 

Disclaimer: This article is for informational purposes only and shall not be construed as financial advice or an offer, invitation or solicitation of any offer to purchase or subscribe for any securities of Manulife US REIT in Singapore or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. You should always do your due diligence and seek professional advice before making any investment decisions. None of the information presented are intended to form the basis for any investment decision, and no specific recommendations are intended.

 

This article first ran on Manulife US REIT’s thought leadership column, Viewpoints, which publishes regular content on the U.S. economy and the office sector. Follow MUST on LinkedIn for all the latest updates!

 

Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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Singapore REIT Monthly Update (August 7th 2022)

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Happy National Day!! 

To celebrate 57 years of Singapore’s independence, I’ll be offering free portfolio review consultation! For a limited time only. https://calendly.com/kennyloh/portfolioconsult

 

Technical Analysis of FTSE ST REIT Index (FSTAS351020)

FTSE ST Real Estate Investment Trusts (FTSE ST REIT Index) decreased from 807.47 to 828.74 (2.63%) compared to last month’s update. The REIT Index has reversed to a short-term uptrend, with the 20-day and 50-day Simple Moving Average (20 SMA and 50 SMA) now on an uptrend. The 200 SMA has acted as a resistance for the past 10 days. However, these are small changes as the REIT Index is still moving on a sideways direction in the long-term (see 2nd chart below).

  • Support Lines: Blue
  • Resistance Lines: Red
  • Short-term direction: Up
  • Medium-term direction: Sideways
  • Long-term direction: Sideways
  • Immediate Support at 800, 20 SMA, 50 SMA
  • Immediate Resistance at 200 SMA

Technically, FTSE ST REIT Index has started a short term uptrend but is currently testing the 200 SMA resistance. Longer term wise the REIT index is still trading in a sideways consolidation range between 800 and 890. The index has to break the 890 resistance convincingly before declaring the “The Returning of the Bull in S-REITs”.

Normal Timeframe chart (~2 years)

Longer Timeframe chart (~3 years)

Previous chart on FTSE ST REIT index can be found in the last post: Singapore REIT Fundamental Comparison Table on July 3rd, 2022.

Fundamental Analysis of 38 Singapore REITs

The following is the compilation of 38 Singapore REITs with colour-coding of the Distribution Yield, Gearing Ratio and Price to NAV Ratio.

  • The Financial Ratios are based on past data and there are lagging indicators.
  • This REIT table takes into account the dividend cuts due to the COVID-19 outbreak. Yield is calculated trailing twelve months (ttm), therefore REITs with delayed payouts might have lower displayed yields, thus yield displayed might be lower for more affected REITs.
  • REITs are updated with the latest Q2 2022 business updates/earnings are highlighted in blue, the rest are updated with Q1 2022 business updates/earning.
  • Since MPACT started trading, values shown below (except price and market cap) are of MCT.
  • MNACT has been delisted, but values are shown below for reference.

Data from StocksCafe REIT Screener. https://stocks.cafe/kenny/advanced

What does each Column mean?

  • FY DPU: If Green, FY DPU for the recent 4 Quarters is higher than that of the preceding 4 Quarters. If Lower, it is Red.
    • Most REITs are green since it is compared to FY20/21 as the base (during the pandemic)
  • Yield (ttm): Yield, calculated by DPU (trailing twelve months) and Current Price as of August 6th, 2022
    • Digital Core REIT: Yield calculated from IPO Prospectus.
    • Daiwa House Logistics Trust: Yield calculated from trailing six months distribution.
  • Gearing (%): Leverage Ratio.
  • Price/NAV: Price to Book Value. Formula: Current Price (as of August 6th, 2022) over Net Asset Value per Unit.
  • Yield Spread (%): REIT yield (ttm) reference to Gov Bond Yields. REITs trading in USD is referenced to US Gov Bond Yield, everything else is referenced to SG Gov Bond Yield.
  •  

Price/NAV Ratios Overview

  • Price/NAV increased to 0.94.
    • Increased from 0.92 from July 2022.
    • Singapore Overall REIT sector is undervalued now.
    • Take note that NAV is adjusted upwards for some REITs due to pandemic recovery.
  • Most overvalued REITs (based on Price/NAV)
    • Parkway Life REIT (Price/NAV = 2.01)
    • Keppel DC REIT (Price/NAV = 1.44)
    • Mapletree Industrial Trust (Price/NAV = 1.43)
    • Ascendas REIT (Price/NAV = 1. 26)
    • Mapletree Logistics Trust (Price/NAV = 1.20)
    • ESR-LOGOS REIT (Price/NAV = 1.12)
    • No change to the Top 3 compared to the March to July updates.
  • Most undervalued REITs (based on Price/NAV)
    • Lippo Malls Indonesia Retail Trust (Price/NAV=0.54)
    • BHG Retail REIT (Price/NAV = 0.57)
    • EC World REIT (Price/NAV = 0.59)
    • ARA Hospitality Trust (Price/NAV = 0.63)
    • OUE Commercial REIT (Price/NAV = 0.66)
    • IREIT Global (Price/NAV = 0.73)

Distribution Yields Overview

  • TTM Distribution Yield decreased to 6.32%
    • Decreased from 6.45% in July 2022.
    • 14 of 40 Singapore REITs have distribution yields of above 7%. (2 less than last month’s update)
    • Do take note that these yield numbers are based on current prices taking into account the delayed distribution/dividend cuts due to COVID-19, and economic recovery. 
  • Highest Distribution Yield REITs (ttm)
    • EC World REIT (11.12%)
    • United Hampshire REIT (9.84%)
    • Prime US REIT (9.75%)
    • First REIT (9.56%)
    • Sasseur REIT (9.19%)
    • Keppel Pacific Oak US REIT (9.12%)
    • Reminder that these yield numbers are based on current prices taking into account delayed distribution/dividend cuts due to COVID-19.
    • Some REITs opted for semi-annual reporting and thus no quarterly DPU was announced.
    • A High Yield should not be the sole ratio to look for when choosing a REIT to invest in.
  • Yield Spread widened to 3.67%.
    • Increased from 3.54% in July 2022.

Gearing Ratios Overview

  • Gearing Ratio decreased to 36.52%. 
    • Decreased from 36.83% in July 2022.
    • Gearing Ratios are updated quarterly. Therefore some of the following REITs have updated gearing ratios compared to last month (those with Q2 2022 updates)
  • Highest Gearing Ratio REITs
    • ARA Hospitality Trust (43.5%)
    • Suntec REIT (43.1%)
    • Lippo Malls Indonesia Retail Trust (42.9%)
    • Manulife US REIT (42.4%)
    • Elite Commercial REIT (41.9%)
    • ESR-LOGOS REIT (40.6%)
    • No change to the Top 3 compared to the April to July updates.

Market Capitalisation Overview

  • Total Singapore REIT Market Capitalisation increased by 3.48% to S$108.6 Billion.
    • Increased from S$104.95 Billion in July 2022.
  • Biggest Market Capitalisation REITs:
    • Capitaland Integrated Commercial Trust ($14.12B)
    • Ascendas REIT ($12.59B)
    • Mapletree Pan Asia Commercial Trust ($10.05B)
    • Mapletree Logistics Trust ($8.48B)
    • Mapletree Industrial Trust ($7.20B)
    • Frasers Logistics & Commercial Trust ($5.28B)
    • MPACT (formerly MCT) moved from 5th to 3rd rank since its merger with MNACT.
  • Smallest Market Capitalisation REITs:
    • BHG Retail REIT ($267M)
    • ARA US Hospitality Trust ($357M)
    • Lippo Malls Indonesia Retail Trust ($377M)
    • First Trust ($444M)
    • EC World REIT ($445M)
    • United Hampshire REIT ($477M)

Disclaimer: The above table is best used for “screening and shortlisting only”. It is NOT for investing (Buy / Sell) decision. If you want to know more about investing in REITs, here’s a subsidised 2-day course with all you need to know about REITs and how to start investing in them.

Top 20 Best Performers of the Month in July 2022

 (Source: https://stocks.cafe/kenny/advanced)

SG 10 Year & US 10 Year Government Bond Yield

  • SG 10 Year: 2.63% (decreased from 2.82%)
  • US 10 Year: 2.83% (decreased from 2.92%)

Major REIT News in July 2022

S-REITs Earnings Season for the Period Ending 30 June 2022 has begun

A total of 30 S-REITs have released their earnings/business updates for the Period Ending 30 June 2022 (31 May 2022 for SPH Reit), as of 6th August 2022.

MNACT delists on August 3rd, 2022

Mapletree North Asia Commercial Trust has delisted on August 3rd, 2022, while Mapletree Commercial Trust has renamed to Mapletree Pan Asia Commercial Trust.


Summary

Fundamentally, the whole Singapore REITs landscape is undervalued based on the average Price/NAV value of the S-REITs. Below is the market cap heat map for the past 1 month. Generally, S-REITs in the past month have increased in market cap as July was the bullish month for S-REITs.

(Source: https://stocks.cafe/kenny/overview)

Yield spread (in reference to the 10 year Singapore government bond of 2.63% as of 7th August 2022) widened from 3.47% to 3.67%. The S-REIT Average Yield increased slightly from 6.30% to 6.32%, while the decrease in the Government Bond Yields more than offsets this Average S-REIT Yield increase. This resulted in the widening of yield spread. The yield of the REITs sector needs to increase to maintain the average yield spread of 4%. S-REITs have been resilient and have one of the highest risk-adjusted dividend yields compared to other stock exchanges.

Technically, FTSE ST REIT Index has started a short term uptrend but is currently testing the 200 SMA resistance. Longer term wise the REIT index is still trading in a sideways consolidation range between 800 and 890. The index has to break the 890 resistance convincingly before declaring the “The Returning of the Bull in S-REITs”.

Note: This above analysis is for my own personal research and it is NOT a buy or sell recommendation. Investors who would like to leverage my extensive research and years of Singapore REIT investing experience can approach me separately for a REIT Portfolio Consultation.

Kenny Loh is an Associate Wealth Advisory Director  and REITs Specialist of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

Continue ReadingSingapore REIT Monthly Update (August 7th 2022)

10 Surprising Things about Living in Singapore

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The quality of life in Singapore is generally considered to be among the most enviable in the world. The country consistently ranks highly in various personal safety, economic freedom, and political stability indices, making it a model for other nations in Asia and beyond.

 

Singapore’s unorthodox systems for achieving these successes are often confusing for foreigners, particularly those who are unfamiliar with shared Asian values of communitarianism and harmony. What this means is expats moving to Singapore are often bewildered and surprised by things that are normal or self-evident to locals.

Here are some things about living in Singapore that may surprise expats.

 

1. It’s Probably Bigger Than You Think

 

Singapore is one of the smallest countries in the world, occasionally being called a microstate or city-state because of its comparatively small size. However, as the 20th smallest country in the world, it is still much bigger than a substantial number of other countries, including such notables as Andorra, Liechtenstein, Barbados, Grenada, San Marino, Monaco, and the Maldives, just to name a few. 

 

With approximately 726 square kilometres (280 square miles) of territory across 63 different islands, it’s not exactly a place you could breeze through in just a couple of days. You could live here all your life and still not have visited all the notable places the country has to offer.

 

2. There’s Plenty of Nature to Go Around

 

Visitors to Singapore often expect the country to be one big city. While this is partly true in some ways, given the contiguous nature of most of the country’s inhabited areas, there are plenty of relatively unspoiled locations as well. If you love being in green spaces, Singapore has that covered.

 

In addition to its numerous publicly accessible parks and gardens, the country is also home to four large (for the country’s size) nature reserves. These are Bukit Timah Nature Reserve, Central Catchment Nature Reserve, Labrador Nature Reserve, and Sungei Buloh Wetland Reserve. In addition to these, there are several smaller protected wildlands scattered across the country as well. 

 

3. There Is a Maximum Height for Buildings in Singapore

 

Because of the country’s status as an international air transportation hub, skyscrapers in Singapore are relatively short by world standards, with most topping out at just 280 metres. The lower maximum height is intended to prevent buildings from interfering with the country’s heavy round-the-clock air traffic. Exceptions, such as the 290-metre-tall Tanjong Pagar Centre, need special permission to exceed the 280-metre limit.

 

4. Singapore Is Considered to Be One of the Easiest Places in the World to Do Business

 

Singapore is consistently ranked as among the easiest places in the world to do business. In 2021, it was just edged out of the top spot by New Zealand. Low corruption, a healthy business ecosystem, and a highly -educated population all contribute to make the country a global business hub, particularly for financial services.

Notably, business incorporation applications can be processed within 15 minutes and, assuming everything is aboveboard, completed in two weeks. This means that if you have a business idea, you can probably make it a reality faster in Singapore than anywhere else in the world.

 

5. Singapore Takes Public Cleanliness Seriously

 

Many Westerners are vaguely aware that chewing gum recreationally is banned in Singapore. The ban was enacted to address the problem of chewing gum litter in public spaces. 


However, the chewing gum ban is not the only unusual public cleanliness law in Singapore. People who fail to flush public toilets after using them can be fined SGD 150, if caught. Perhaps more surprisingly, police officers have been known to do spot checks on foreigners who just used the bathroom.

 

6. The Country Is Designed for Pedestrians

 

If you’re planning to drive in Singapore, you have to be prepared to pay substantially more for the privilege than people from most countries. The government actively discourages the use of private vehicles, as vehicular traffic is considered to be a major impediment to maintaining a high quality of life in Singapore. Registration fees and taxes are notoriously expensive, and even wealthy Singaporeans are not always guaranteed access to a private automobile.

 

Thankfully, the country’s public transit systems are widely regarded to be among the best in the world. Pedestrian bridges and walkways also criss-cross the country. With its pedestrian-centric urban development, it’s no wonder Singaporeans are consistently rated as the world’s fastest walkers, with an average pace of 6.15 kilometres per hour.

 

7. Singaporeans Are Wealthy

 

One out of every six Singaporean households has assets valued at USD 1 million or more. This gives the country the second-highest density of millionaires in Asia, after Hong Kong, and 11th globally. 

 

However, this has to be understood in context, as the cost of living in Singapore is one of the highest in the world as well. Thus, while nice, being a millionaire here won’t mean as much as it does in most parts of the world.

 

8. Singapore Is a Multiethnic Country

 

Singapore’s Chinese, Malay, and Indian communities form the core of a wider community that includes people from all over the world. The country’s status as a logistics and innovation hub has made it home to an extremely diverse set of expatriates from almost every country on earth. If you love to experience other cultures, Singapore is probably one of the best places in the world to do just that.

9. The Country Is Hot and Humid

 

Singapore’s geographic location means that the average temperature is around 31°C in daytime and around 24°C at night, all year round. Additionally, humidity rarely dips below 80%. Unlike many other countries situated near the equator, Singapore’s dry and wet seasons are not especially distinct. This means that the country’s weather is fairly homogenous throughout the year.

 

If you’re not a fan of hot and humid weather, don’t worry. Most of Singapore’s enclosed public spaces are fully air-conditioned. Air-conditioning is such a central part of Singaporean life that Lee Kwan Yew, modern Singapore’s founding father, attributed it to his country’s success.

 

10. Most Singaporeans Live in Public Housing

 

About 86% of Singaporeans live in publicly provided housing—and this includes many of the millionaires mentioned earlier. The close living conditions of multiethnic Singaporeans of different social classes in these flats is often attributed as a key factor in shaping the country’s current identity. The success of Singapore’s public housing efforts has been the inspiration for many similar programmes throughout the world.



These are just some of the most common things that surprise expats who just moved to Singapore. Singaporean society and culture are far more complex than they seem to be on the surface, and it is sometimes very far removed from what is typical in the West or even in other Asian countries. But if you keep an open mind, you just might find that Singapore’s quality of life—and the seemingly strange things its people do to achieve it—are not only appealing but worth emulating, as well.

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