An overview of the S-Reit landscape
If you’ve only got a minute:
- S-Reits are popular among retail investors as they offer attractive dividend yields compared to government bonds and fixed deposits.
- S-Reits can invest in property ranging from single sectors (commercial, healthcare, hospitality, industrial and retail) to a combination of them.
- There has been a trend towards S-Reits merging to achieve a more well-rounded portfolio.
Singapore has often been labelled a property-obsessed country. Generally, investing in property has its merits. As a tool for wealth accumulation and legacy planning, it worked well for past generations. Moreover, residential property has regularly yielded returns higher than inflation.
Today, it may be a less viable option for younger Singaporeans as property prices have been steadily rising in the past couple of years, outpacing wage growth. The government even stepped in to institute a further round of residential property cooling measures in December 2021. Such measures made the purchase of an investment residential property less attractive for most age groups in Singapore.
Thankfully, through Real Estate Investment Trusts (Reits), retail investors can still gain exposure to property or diversify to other property segments without the hassle and high costs of owning physical properties.
Since Singapore Reits (S-Reits) were first listed on the Singapore Exchange (SGX) in 2002, they have steadily grown in popularity among retail investors. There are some key reasons for this.
Firstly, S-Reits are required to distribute 90% of income earned as dividends to unitholders, an attractive proposition for those in favour of “income investing”. Distributions to unitholders, which are quarterly or semi-annual, are exempt from tax too.
As S-Reits have an average dividend yield of between 5% and 6%, they might provide unitholders with more attractive returns than government bonds and term deposits, especially in the low interest rate environment of the recent years. Historically, Reits have also performed well in a rising interest rate environment.
Entry costs are often low too, with individuals able to purchase S-Reits through brokers like DBS Vickers with a minimum investment of 1 lot or 100 units. If the unit price of a particular S-Reit is $2, this means you will be able to invest in a portfolio of income-generating real estate assets for a reasonable $200 (excluding brokerage fees and tax).
As of 31 December 2021, there are 44 S-Reits and property trusts listed on the Singapore Exchange, making up for a market capitalisation of S$115 billion or 13% of the entire Singapore stock market. More than 85% of S-Reits and property trusts have overseas properties in their portfolios. Seven S-Reits are constituents of the Straits Times Index (STI), the highest ever for the asset class.
Siblings of Reits
Property trusts and stapled securities are siblings of Reits and 8 of them are listed in Singapore.
1. Property Trusts
The primarily differences between Reits and property trusts are that the latter is not required to pay out 90% of income as dividends to unitholders. Property trusts are not subjected to the same debt requirements or asset size limits that Reits have to adhere to. As a result, property trusts do not face the same tax incentives that Reits enjoy.
2. Stapled Securities
Meanwhile, stapled securities are instruments that bundle Reits, property trusts and even property stocks together. Only the Reit component of a stapled security is required to meet Reit listing requirements.
In Singapore, Reits, stapled securities and property trusts typically invest in shopping malls, residential properties, offices, industrial facilities, hospitality and healthcare properties.
The 5 property sectors
As a whole, Reits, property trusts and stapled securities can be split into the following broad categories:
Properties held are mostly office buildings regardless of where they are located (i.e. in the central business district or in suburban areas).
These include: Keppel Reit, IReit Global, Manulife US Reit, Prime US Reit, Keppel Pacific Oak US Reit, Sabana Reit, Elite Commercial Reit, OUE Commercial Trust.
Trusts that fall into this space own hospitals, specialist medical centres and nursing homes.
These include: First Reit and Parkway Life Reit.
This is related primarily to portfolios that consist of hotels, serviced residences and in some cases even theme parks.
These include: Ascott Residence Trust, ARA Hospitality Trust, CDL Hospitality Trusts, Far East Hospitality Trust, Frasers Hospitality Trust.
Trusts that focus on this sector mostly count warehouses, logistics processing facilities, and more recently, data centres and e-commerce facilities as key components of their portfolio.
These include: AIMS APAC Reit, ARA LOGOS Logistics Trust, Ascendas Reit, Ascendas India Trust, Daiwa House Logistics Trust, DigiCore Reit, EC World Reit, ESR-Reit, Frasers Logistics & Industrial Trust, Keppel DC Reit, Mapletree Industrial Trust, Mapletree Logistics Trust, Sabana Reit.
Properties included in a Retail portfolio include shopping malls (both urban and suburban) and outlet malls.
These include: BHG Retail Reit, CapitaLand China Trust, Dasin Retail Trust, Frasers Centrepoint Trust, Lippo Malls Indonesia Retail Trust, Sasseur Reit, United Hampshire Reit, Starhill Global Reit.
S-Reits are not restricted to holding just one type of property. A diversified Reit is a real estate investment trust whose portfolio contains more than one type of property or other real estate assets.
In fact, a number of S-Reits including some of the larger ones, have a diversified portfolio.
These include: CapitaLand Integrated Commercial Trust (commercial and retail), Cromwell European Reit (commercial, industrial and retail), Lendlease Global Reit (commercial and retail), Mapletree Commercial Trust (commercial, hospitality and retail), Mapletree North Asia Commercial Trust (commercial and retail), SPH Reit (commercial, healthcare and retail), Suntec Reit (commercial and retail).
In recent years, there has been a trend toward Reits merging, with the view of either having a greater depth of properties within a particular real estate sector and/or a more well-rounded portfolio.
An example of the former is the 2018 merger of ESR-Reit and Viva Industrial Trust, which resulted in Singapore’s 4th largest industrial Reit. Meanwhile, CapitaLand Commercial Trust and CapitaLand Mall Trust merged to form CICT in November 2020. Following the merger, CICT is now the largest S-Reit by market capitalisation, offering investors exposure to both commercial and retail properties.
More recently on 31 December 2021, Mapletree Investments proposed a merger between Mapletree Commercial Trust and Mapletree North Asia Commercial Trust to form Mapletree Pan Asia Commercial Trust (MPACT). If the merger goes through, MPACT will be one of the largest Reits in Asia.
The advantages of having an enlarged portfolio include:
- A larger asset base might lead to easier access to funds for further expansion
- Smaller concentration risk
- Higher debt headroom
- Distributions could be higher for unitholders
On the other hand, the disadvantages are:
- There could be less diversification if the merged entity is concentrated in a single country
- The possibility of the ratio of debt increasing
This is the 2nd instalment in our series on S-Reits. If you’re keen to learn more about Reits, check out the other articles:
Part 1: The basics of Reits
Part 3: Practical ways to invest in Reits
Part 4: How to evaluate and analyse Reits
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
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