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Keen interest in Reits amid low interest rates

The 32 Reits and six stapled trusts on SGX have averaged total return of 12.2% this year

Real estate investment trusts (Reits) have been gaining significant market traction amid the low interest rates of recent years.

Three years ago, there was just one Reit in the benchmark Straits Times Index (STI) - CapitaLand Mall Trust - which was also the very first Reit to list on the Singapore Exchange (SGX), in 2002.

Then, in June 2014, Ascendas Reit joined the STI, and almost two years later, in March this year, CapitaLand Commercial Trust joined.

Four of the five stocks that make up the STI reserve list are also Reits.

STI's reserve list comprises Mapletree Commercial Trust, Suntec Reit, Keppel Reit, Mapletree Industrial Trust and Singapore Post.


Mapletree Commercial Trust's portfolio includes VivoCity at Harbourfront (above), Singapore's largest mall; Suntec Reit's portfolio includes office and retail properties in Suntec City; and Keppel Reit's portfolio includes Ocean Financial Centre. PHOTOS: VIVOCITY, MATTHIAS HO, LIM YAOHUI

These four Reits and one company will replace any constituents that become ineligible as a result of corporate actions, before the next constituent review. In the year to date, these five stocks of the STI reserve list have averaged a 15.9 per cent total return, which has taken their average three-year total return to 37.8 per cent.

Under the Global Industry Classification Standard (GICS) structure, Reits are an industry group under the Real Estate Sector. Real Estate, previously a sub-sector under Financials, now forms the 11th GICS Sector - from 10 - which took effect at the start of last month.

The four Reits in the STI reserve list are well diversified by the type of properties that make up their portfolios. This is similar to the three Reits in the STI that include a retail Reit, an industrial Reit and a commercial/office Reit.

Reits raise capital to purchase primarily real estate assets, usually with a view to generating income for unit holders of the funds.

They allow individual investors to access real property assets and share the benefits and risks of owning a portfolio of properties, which typically distribute income at regular intervals through dividends.


Mapletree Commercial Trust's portfolio includes VivoCity at Harbourfront, Singapore's largest mall; Suntec Reit's portfolio includes office and retail properties in Suntec City (above); and Keppel Reit's portfolio includes Ocean Financial Centre. PHOTOS: VIVOCITY, MATTHIAS HO, LIM YAOHUI

The four Reits average a 5.9 per cent indicative dividend yield.

This means that an investor who held $10,000 worth of units that were balanced across the four Reits in the past 12 months would have earned $590 in dividends.

Mapletree Commercial Trust, Suntec Reit, Keppel Reit and Mapletree Industrial Trust distribute dividends on a quarterly basis.

From one Reit in 2002, Singapore's Reit sector is now made up of 32 Reits and six stapled trusts with a combined market capitalisation of over $70 billion. Most stapled trusts are hospitality plays, such as Ascendas Hospitality Trust, CDL Hospitality Trusts, Far East Hospitality Trust, Frasers Hospitality Trust and OUE Hospitality Trust.

The three Reits listed on the SGX this year are Manulife US Reit, Frasers Logistics and Industrial Trust, and EC World Reit. As of the close on Sept 16, Manulife US Reit was trading at 3 per cent above its initial offering price, Frasers Logistics and Industrial Trust had gained 6.7 per cent while EC World Reit was 1.2 per cent below its initial offering price.

Together, the 32 Reits and six stapled trusts listed on the SGX have averaged a total return of 12.2 per cent so far this year and are distributing an average dividend yield of 6.7 per cent. This compares with a dividend yield of 4 per cent for the STI and 4.1 per cent for the MSCI World Reit Index.


Mapletree Commercial Trust's portfolio includes VivoCity at Harbourfront, Singapore's largest mall; Suntec Reit's portfolio includes office and retail properties in Suntec City; and Keppel Reit's portfolio includes Ocean Financial Centre (above). PHOTOS: VIVOCITY, MATTHIAS HO, LIM YAOHUI

The three Reits that form a part of the STI make up between 6 and 7 per cent of the STI's weightages.

Reits are favoured by investors here as their average dividend yield of 6 to 7 per cent compares favourably in a "lower for longer" interest rate environment, resulting in their outperformance versus the STI in the past few years. The stability of regular income has been a draw, especially in a volatile market rocked by recessionary fears triggering the broad decline in January, and by the Brexit vote and other global events.

• The writer is the SGX's market strategist and author of the weekly SGX My Gateway report.

From one Reit in 2002, Singapore's Reit sector is now made up of 32 Reits and six stapled trusts with a combined market capitalisation of over $70 billion.

A version of this article appeared in the print edition of The Sunday Times on October 02, 2016, with the headline 'Keen interest in Reits amid low interest rates'. Print Edition | Subscribe