Singapore REITs: everything you need to know

REITs is a popular category of stocks in the Singapore market with its own brand of S-REITs to boast. While mostly seen as a long-term investment vehicle, there can be opportunities as well when trading CFDs on REITs.

What are REITs?

Real estate investment trusts (REITs) as the name suggests involves investing in real estate assets. However, rather than purchasing an entity by oneself, REITs allows you to engage in a collective investment scheme where you join a group of investors to own a portfolio of properties and receive the returns together. This can be residential, commercial, retail or even mixed developments.

Why do REITs exist?

More than fifty years ago, US President Dwight D. Eisenhower signed into legislation the first form of REITs through the REIT Act, part of the Cigar Excise Tax Extension. The Act had exempted this small group of companies from corporate taxes, helping investors enter into the investment of a large-scale, diversified portfolio of income-producing real estate while enjoying the tax efficiency. Note that REITs have to distribute at least 90 percent of their income to partake these tax advantages, thus indirectly enforcing forced dividends for investors. REITs had been introduced in Singapore in 2002 with the listing of CapitaMall Trust and have grown substantially since.

Types of Singapore REITs

When one thinks about Singapore REITs, there usual pigeon-hole of the various type of REITs comes in. The table below features the typical type of REITs commonly traded in the Singapore market with examples under each category.

Retail REITs

As the name suggests, the majority of spaces here deal with retail which means the typical shopping malls comes under this segment.

Eg CapitaLand Mall Trust, Frasers Centrepoint Trusts, Mapletree Commercial Trusts

Industrial REITs

Industrial REITs are primarily spaces serving non-customer facing industrial needs. For example, warehouses, factories and industrial parks falls under this category.

Eg Ascendas Real Estate Investment Trust, Mapletree Industrial Trust, Frasers Logitics & Industrial Trust

Commercial REITs

More commonly known as office REITs due to the nature of the spaces which serves the demand for office spaces mostly within the business hub of Singapore.

Eg CapitaLand Commercial Trust, Frasers Commercial Trust

Hotel and Resort REITs

One can often identify these through the hospitality trusts term within its name. These are properties including hotels, and serviced residences.

Eg Ascendas Hospitality Trust, CDL Hospitality Trusts, Far East Hospitality Trusts

Healthcare REITs

With Singapore’s earlier focus on becoming a medical hub, healthcare REITs had been another popular segment. Hospitals, medical centers and even retirement homes are associated with healthcare REITs.

Eg Parkway Life REIT, First REIT, RHT REIT

Top 10 Singapore REITs

Below we feature ten of the largest REITs, ranked by market capitalisation:

Type of REIT YTD price % change 52-week price % change Dividend yield Dividend yield 5 year average Company market cap
(SGD bn)
Ascendas Real Estate Investment Trust Industrial REITs 6.4% 11.4% 4.8% 5.6% 11.44
Capitaland Mall Trust Retail REITs -15.0% -15.0% 4.8% 5.3% 7.72
Mapletree Logistics Trust Industrial REITs 11.5% 29.3% 4.1% 6.1% 7.38
CapitaLand Commercial Trust Office REITs -10.1% -10.1% 4.9% 5.2% 6.92
Mapletree Commercial Trust Retail REITs -13.0% 6.0% 3.8% 5.3% 6.89
Mapletree Industrial Trust Industrial REITs 1.9% 27.4% 4.6% 6.1% 5.84
Suntec Real Estate Investment Trust Diversified REITs -14.7% -13.3% 5.6% 5.6% 4.42
Keppel DC REIT Specialized REITs 18.8% 56.2% 3.1% 4.6% 4.03
Frasers Logistics & Commercial Trust Industrial REITs -4.8% 1.7% 6.1% 5.6% 4.02
Keppel REIT Office REITs -7.3% -5.7% 4.9% 5.0% 3.90

Source: Refinitiv. Data accurate as of 5 June 2020.

Three popular Singapore REITs

Below we outline three REITs to watch in the post-Covid-19 reality:

Ascendas REITs

Ascendas REIT (A-REIT) is Singapore’s first and largest listed REIT with assets across Singapore, Australia and the UK. The majority of which, however, sticks close to home with approximately 82% of the revenue in 2019 drawn locally in Singapore through a diversified portfolio of about 100 properties.

With a large percentage of assets in the industrial space, industrial centres, logistics and distribution centres, and business parks are just some of the holdings to count in A-REIT’s portfolio. Prices had shown a strong recovery post the Covid-19 plunge in March 2020 reflecting hopes for an economic recovery.

Mapletree Logistics Trust

Singapore-based Mapletree Logistics Trust has certainly been amongst the hot favourites as the logistics sector saw a boom following the arrival of Covid-19. The Asia-focused REIT has a diversified portfolio of real estate across Singapore, Hong Kong, Japan, Australia and China among others. Land-scarce Singapore and Hong Kong accounts for the majority of Mapletree Logistics Trusts’ income at 36% and 25% respectively over 2019, which keeps this REIT resilient.

Longer-term demand nevertheless remains a question for the logistics trust, but recovery from the Covid-19 episode into the second half (H2) of 2020 provides potential here.

Keppel REIT

Keppel REIT had perhaps seen the price recovery paled in comparison to the two abovementioned peers with the portfolio of commercial assets in prime financial districts of Singapore, Australia and Seoul seen under pressure alongside the recent global shift towards telecommuting in the wake of Covid-19.

That said, this office REIT with its pristine portfolio of assets remain poised to ride a recovery wave given the highly sought after set of office space in prime locations. The lagged recovery in prices also reflects greater potential for capital appreciation, while a stable pay-out is expected to be maintained.

What affects the price of REITs?

Although REITs are often evaluated for their dividend generating properties, it is equally, if not more important to monitor the price fluctuations. Below we highlight some of the key factors influencing the price of REITs.

Growth outlook

The most obvious factor influencing REITs demand would be of little doubt the growth outlook for the property sector, which would also be a function of the economic growth in the country. Higher economic growth prospects would likewise improve the expected demand for commercial spaces in the country. Robust growth also boosts consumption thereby benefitting the retail space as well.

An economy losing its growth momentum could see the dampening of interest in REITs over the longer term. It is interesting to note, however, that due to the resilient nature of some REITs as defensive bets for the market, referring to stocks that generate constant dividends through market fluctuations, the downsides may be curbed despite period of market downturn. Looking at the likes of the abovementioned A-REIT and CMLT, prices had stayed unchanged and rose 0.44% respectively despite a 1.57% drop for the STI in December 2018.

Interest rate

REITs and interest rates are often things that you see side by side, no doubt with the strong sensitivity REITs have towards the latter. This is primarily due to the substitution effect between the two, meaning that since REITs are also ‘income generating’ in the form of issuing a high percentage of its profit as dividend, an increase in interest rates thereby diminish the attractiveness of REITs investments. Rising interest rates also can be a pain point for REITs from a higher borrowing cost perspective as the trusts borrow to acquire new assets under their portfolio.

This relationship, however, may not always hold true as we recall the surge in REITs prices in 2017 despite the three rate hikes by the Federal Reserve (Fed) in the US, which Singapore interest rates are a function of. A-REIT saw its price pick up 19.8% in that year. As interest rate hikes gather pace amid a growth environment that would also equate to increase in demand for spaces, it would be really be a balance on which factor outweighs for investors’ interest.

Evidently there are also a whole slew of other reasons that could affect the attractiveness of REITs such as supply fluctuations, all to be taken into consideration when examining this asset class.

Trading REITs CFDs

It is a conventional wisdom that REITs primarily serve as a high-dividend generating form of investment. That being said, trading REITs CFDs had also been rather popular amongst IG clients in Singapore. While earnings seasons typically finds a surge in activity with traders looking for price fluctuations with the performance reports releases, CFDs can also help with hedging against losses in price depreciation during periods of poor REITs demand.

With Singapore REITs expected to perform better into 2019, set on the back of a patient Federal Reserve on interest rates and growth expected to continue though at a slower rate, CFDs would no doubt be one way to ride the upcoming trend.

Learn more about CFD trading and how to trade CFDs.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

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