A recent report by Nikkei Asian Review said that Singapore-listed real estate investment trusts (S-REIT) are emerging as safe havens for equity investors due to their low debt levels and steady cash flow. The report said that he Singapore REIT sector is viewed favourably by such investors especially as market uncertainties increases as it allows them to maintain their relatively high dividends.
A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate.
REITs can be publicly traded on major exchanges, public but non-listed, or private. The two main types of REITs are equity REITs and mortgage REITs (mREITs). In November 2014, equity REITs were recognized as a distinct asset class in the Global Industry Classification Standard by S&P Dow Jones Indices and MSCI. The key statistics to examine the financial position and operation of a REIT are net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO).
There are 31 REITs listed on the Singapore Exchange, with the latest REIT, Cromwell European REIT, listed on 30 November 2017. The first one to be set up being CapitaMall Trust in July 2002.
They represent a range of property sectors including retail, office, industrial, hospitality and residential. S-REITs hold a variety of properties in countries including Japan, China, Indonesia and Hong Kong, in addition to local properties. In recent years, foreign assets listing on the Singapore Exchange has grown to overtake those traditional listing with local assets.
S-REIT are regulated as Collective Investment Schemes under the Monetary Authority of Singapore’s Code on Collective Investment Schemes, or alternatively as Business Trusts.
Some of the regulations that S-REITs have to adhere to includes:
- Maximum gearing ratio of 35%
- Annual valuation of its properties
- Restriction to certain types of investments the S-REITs can make
- Distribution of at least 90% of its taxable income
S-REITs benefit from tax advantaged status where the tax is payable only at the investor level and not at the REITs level. In addition to REITs, there are ten Business Trusts (“BTs”) (similar to REITs but may hold assets that are not conventional and are not subjected to stringent rules as compared to SREITs), and six Stapled Instruments (composed of a stapled Business Trust Unit and a REIT unit), which are listed on the Singapore Exchange. The total market capitalisation of the listed Trust on Singapore Exchange approximate SGD 100 billion (as at 30 Nov 17).
The majority of the returns by S-REITs have been in the negative territory in 2018. Market observers say the increase in interest rate has some bearings on this outcome, but considering the fact that majority of the global markets have experienced a dip in 2018, this should not be the only factor to keep savvy investors away from investing in this asset class.
The online publication Dollars and Sense said in their recent report card on S-REIT that the best performing S-REIT in YTD 2018 is CapitaLand Mall Trust.
It said: “While retail REITs have not been in favour due to burgeoning e-commerce in recent years, the ongoing US-China trade war has taken some of the shine off other REIT types such as industrial, logistics and offices. Other REITs that posted a good return includes retail focused Dasin Retail Trust (6.0%) and Mapletree Commercial Trust (5.0%), as well as Sabana REIT (5.4%) and IREIT (4.2%).”
According to research from the Singapore Exchange, there was a net inflow of S$28.1 million from institutional investors into the S-REIT sector in November, reversing three consecutive months of net outflows.
River Valley Asset Management said on a note on Wednesday in a climate of fear and uncertainty there were still attractive opportunities for S-REIT investors but that they should go back to their core investment philosophy and look for businesses with predictable cashflows,
“As we close an eventful 2018, fear and uncertainty seem to rule markets, leaving attractive opportunities for investors in their wake. In an environment like this we go back to our core Investment philosophy and look for businesses with predictable cashflows that are trading at an attractive price. In our search we occasionally find a company that is trading attractively mainly because most investors have not heard of it. Cromwell European REIT (CERT), listed in Singapore just about a year back, is one such name.
CERT is the first diversified pan-European real estate trust in Singapore and has a mandate to invest in income-generating office, light industrial/ logistics and retail properties in Europe. CERT has a portfolio of properties in countries including Denmark, France, Germany, the Netherlands, Italy and others. In this month’s newsletter, we present our detailed analysis of the company and explain how this stock clearly fits our investment philosophy and why we think it is a stock just waiting to be discovered by the yield-chasing Singapore market.”
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