What I like about investing into REITS
REITS is easy to invest in. As long as you have a brokerage account you can buy and sell from the stock exchange.
It's a simple method to becoming a property investor.
Unlike buying property, you only need a few thousand dollars to get a decently sized position and you do not need to legal paper work, mortgage, negotiations etc.
Collecting income is really passive because there is a REIT manager who runs the business for you.
Whats the difference between a REIT and shares from a property developer.
A real estate investment trust (REIT) is a company that owns income-producing real estate.
REITs own many types of commercial real estate, ranging from
1) offices 2) shopping centers 3) hotels.
The idea is ownership to get rental income mainly.
Lets take an example, Capitaland Mall Trust.
Source: CapitaLand Mall Trust
For example, Capitaland Mall Trust which owns retail properties like Bugis Junction and Plaza Singapura, collects rent from their tenants.
Then 90% is distributed to their unit holders every FEB, MAY, AUG, NOV.
Property developer on the other hand builds properties to sell.
A developer can own land that they want to build or they can own unsold properties to sell.
An example is Capitaland.
Most of the time the idea is usually development income. Build and sell.
Having said that they can sometimes also own buildings for rental income.
3 basics of REITS
1) If you own a share of a REIT, you are a unitholder and REITs have to pay out at least 90% of profits to you.
2) Most Sreits pay out their income every quarter.
As you can see from this image, there are more than price to take note of before investing in a REIT.
The distribution yield is important which is how much dividends you get per unit.
Some are 4%+ and some are 8% plus.
3) REITs always have some loans to finance the property they own which is the gearing ratio.
By law this gearing ratio figure cannot be more than 45% and that's why most are 30+% in the picture
Now, this income from REIT is not guaranteed.
A poorly managed reit can see declining income from rent.
An example would be SOILBUILDBIZ REIT who owns industrial properties.
Dividends fell for 2 years from 7c in year 2015 to 4.41c in year 2017.
Source: SoilBuild Business Space REIT
Types of REITs
This is a quick snapshot for you!
Retails REITs who hold overseas retail properties include CapitaLand Retail China Trust, Lippo Malls Indonesia Retail Trust, Sasseur REIT and BHG Retail REIT
CapitaLand Mall Trust, Frasers Centrepoint Trust and SPH REIT hold mainly Singapore retail properties.
Starhill Global Real Estate Investment Trust owns a mix of both local and overseas properties.
Mapletree Commercial Trust, which owns both retail and office properties, is classified as a retail REIT under the GICS.
The trust owns five properties including Singapore’s largest retail mall Vivocity (image below) and Mapletree Business City.
The largest office REIT listed here is CapitaLand Commercial Trust, other listed commercial REITs include Frasers Commercial Trust, Keppel REIT and Manulife US Real Estate Investment Trust.
REITs in the healthcare sub-segment are First Real Estate Investment Trust and Parkway Life REIT.
The industrial sub-segment covers properties such as factories, warehouses and business parks. Possibly the most well known is Ascendas Real Estate Investment Trust. They own multiple buildings in science park area.
Others industrial REITs include AIMS AMP Capital Industrial REIT, Cache Logistics Trust, Mapletree Industrial Trust and Mapletree Logistics Trust.
How to start?
Step 1: Open a brokerage account. Suggestions below
Step 2: Select the REIT you wish to buy!
Source: The Ultimate Cheatsheet: Cheapest Stock Trading/ Brokerage House In Singapore
As always, buying is easy. Investing well over the long term is hard.
3 Factors On What Is A Good Reit To Consider Investing
1) Consistently high occupancy rate
A high occupancy rate means that the REIT can lease out most of its leasable area and can maximise its income from collecting rents from tenants.
A lease with the tenant makes the REIT income predictable and sustainable.
You can simply walk into the mall and observe the shopper traffic. If tenant mix is good and shopping traffic is strong, it is probably doing well.
For example, vivocity is frequently very crowded.
More explanation in video below!
2) Price-to-book ratio below one
The price-to-book ratio compares the price of a unit of a REIT with the book value per unit. As investors, look for REITs that are trading below its book value.
Because the book value of REITs is mostly made up of properties, it is a good indicator of how much unitholders would get back should the REIT decide to liquidate its assets.
A low price-to-book ratio will reduce the risk of any losses should the REIT fold.
3) A strong management team
As an investor, research into past transactions done by the management team.
A strong manager with the right experience in the industry would have some track record of growing the properties income for the REIT.
Capitaland Mall Trust for example has improved many major malls in SG such as Plaza Singaporura.
3 Free Tools To Analyse A Reit
There are tools to help you understand a REIT before investing.
The first tool is SGX STOCK SCREENER.
This tool filters very quickly the REIT size and the Yield it can give to you.
Source: SGX Stock Screener
The second tool I like is PROPERTYINVESTSG.com.
This tool tells you thinks like Forward looking Dividend per unit (FWD DPU) and when is dividend paid out at a quick glance.
Source: REIT Data
The third tool is DIVIDENDS.SG.
This tools shows you dividend history over the last few years if you want to understand the management teams track record.
Source: CAPITALAND MALL TRUST (C38U)
Is it easy to pick a REIT to invest for dividend income?
There is certainly analysing work to be done.
If you are a beginner investor or if you hate research, then its certainly better to invest into a REIT ETF.
There are 3 listed in SGX:
- Nikko AM STC Asia REIT ETF (SGX: CFA),
- Phillip APAC SGX REIT ETF (SGX: BYJ) (SGX: BYI)
- Lion-Phillip S-REIT ETF (SGX: CLR).
While investing into a REIT etf has a small layer of fees, you'd get diversification done for you to reduce your risk further.
These 3 funds are also tax exempted and are an effective way for you to be a passive investor. There will be no need to examine the REIT manager's ongoing performance.
Over time, aim to build more and more into it so that you can grow a decent sum of passive income. Good luck!
If you want to find out on other dividend paying ETFs,
Last updated on July 8th, 2019 at 11:01 pm