The Motley Fool Singapore'S: Complete Guide To Buying The Best Singapore Reits

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The Motley Fool Singapore’s

Complete Guide To
Buying The Best
Singapore REITs
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Disclosure: The following disclosure is accurate as of the time of publication (5 September 2018).
Chin Hui Leong owns shares in Berkshire Hathaway B, CapitaLand Mall Trust, Frasers Centrepoint
Trust, Mapletree Logistics Trust, Parkway Life REIT, Singapore Exchange and Suntec REIT. Chong Ser
Jing owns shares in Berkshire Hathaway B, Frasers Commercial Trust, Mapletree Commercial Trust,
Mapletree Industrial Trust and Mapletree Logistics Trust. David Kuo owns shares in Ascott Residence
Trust, CapitaLand Commercial Trust, CapitaLand Retail China Trust, CapitaLand Mall Trust, First
REIT, Frasers Centrepoint Trust, Keppel REIT, Mapletree Commercial Trust, Mapletree Industrial Trust,
Parkway Life REIT, Singapore Exchange Limited and Starhill Global REIT. Jeremy Chia owns shares in
Berkshire Hathaway B, EC World REIT, First REIT and Keppel REIT. Sudhan owns shares in CapitaLand
Commercial Trust, CapitaLand Mall Trust and Singapore Exchange Limited. The Motley Fool Singapore
has recommendations on Ascott Residence Trust, CapitaLand Commercial Trust, CapitaLand Mall
Trust, CapitaLand Retail China Trust, First REIT, Frasers Centrepoint Trust, Mapletree Commercial Trust,
Mapletree Industrial Trust, Parkway Life REIT and Singapore Exchange Ltd.
Visit us online at www.Fool.sg
2 The Motley Fool Special Report fool.sg

Table of Contents
Introduction
What Are REITs?

• 5 Facts About Singapore-Listed REITs
• 5 Largest REITs in the Singapore Stock Market
REITs Versus Investing in Other Instruments
• Do You Know the Difference Between REITs, Property Trusts, and Stapled Securities?
• The Pros and Cons of Investing in REITs
• 8 Differences Between Investing in REITs and Physical Properties
• Why I Invest in REITs Over Treasuries and Corporate Bonds
S-REIT Regulations
• New REIT Regulations: What Investors Need to Know
REIT Structure
• What Investors Should Know About a Typical REIT Structure Using Frasers Centrepoint Trust as
an Example
Different Type of REITs Available
• 8 Different Types of REITs and Stapled Trusts Listed in Singapore
REIT Financial Statements
• How to Choose the Best REITs to Invest In?
REIT Valuation
• Valuing REITs: A Quick Primer
Choosing the Best REITs
• 3 Factors to Consider When Investing in REITs
• How to Identify REITs That Have a Portfolio That Can Appreciate in Value
• How to Sieve out the Best REITs from the Rest?
• 3 Factors to Consider When Analysing a REIT
Types of REITs to Avoid
• 4 Types of REITs to Avoid
• Three Red Flags When Investing in REITs
Risks When Investing in REITs
• Why You Shouldn’t Invest in REITs
• 3 Big Risks Investors Must Know About A Real Estate Investment Trust
REIT Exchange-Traded Funds (ETFs)
• REIT ETFs Listed in Singapore: 5 Quick Points of Comparison
• What Investors Should Know About Lion-Phillip S-REIT ETF
Commonly Used Terms in REITs Investing
• REIT Jargon Demystified: Commonly-Used Terms That REIT Investors Should Know
Bonus Contents
• REIT Investing Made Simple: A Checklist to Pick Out the Best REITs
• Are REITs Worth Considering When Rates Rise?
• 2 REITs To Buy for Your Parents
• 2 REITs That Have Increased Their Distribution Per Unit for Five Consecutive Years
• 3 Ways REITs Can Grow Their Distributions
• 2 REITs That Give Exposure to the Fast-Growing China Property Market
fool.sg Special Report The Motley Fool 3

Introduction
Dear fellow investors,
Real estate investment trusts, or REITs as they’re commonly known, are really popular
among investors in Singapore’s stock market. There’s a good reason for that. REITs
generally have high distribution yields and can thus provide a steady stream of passive
income for investors.
But, with over 40 REITs in Singapore’s stock market right now, navigating through
them can be a tricky affair. Besides, a REIT need not necessarily be a good investment
just because it has a high distribution yield. It’s for these reasons and more, that we, at The
Motley Fool Singapore, have been writing and publishing many articles on REITs at our
flagship website, Fool.sg, over the years.
In this complete Singapore REITs (S-REITs) guide, we have compiled all the best REIT-
related articles on Fool.sg. These articles touch on a wide range of topics, from the basics of
REITs, to the risks involved when investing in them.
So, sit back, and enjoy the Foolish guide we have compiled just for you. We hope you’ll
be a much savvier – and richer – REIT investor after reading our carefully-prepared guide.
Fool on!
The Motley Fool Singapore

September 2018

What Are REITs?
5 Facts About Singapore-Listed REITs

Jeremy Chia | December 21, 2017
Singaporeans love to invest in real estate. It is, 5) 3 REIT listings in Singapore this
therefore, no surprise that real estate investment
trusts (REITs) have been a popular investment year
vehicle in Singapore since its debut in 2002. Without There were a total of three new REITs that listed
further ado, here are five interesting facts about in Singapore this year. The strong performance of
REITs in Singapore. REITs in Singapore in the past and the attention it
garners from Singaporean investors have been key to
1) Singapore is the second largest attracting listings in Singapore.
REIT market in Asia The Foolish bottom line
Singapore has been a popular destination for REIT Investing in REITs in Singapore has rewarded
listings. Since its debut in 2002, the Singapore REIT shareholders handsomely in recent years. This year
market has grown to become the second largest REIT was an exceptionally good year for REITs as more
market in Asia, behind Japan. investors gained confidence in the property market
2) There are a total of 44 REITs

and property-related trusts and
securities in Singapore
There have been numerous REIT and property
related trusts listing each year. The total tally now
stands at 44. They each offer their unique value
proposition and area of specialty, giving investors a
variety of options to choose from.
3) There are 3 REIT ETFs in

Singapore
REIT exchange-traded funds (ETFs) track the
performance of a group of REITs, giving investors
exposure to a larger portfolio of properties.
4) REITs have outperformed the

Straits Times Index in recent years
A widely-used Singapore REIT index, which
consists of the 20 largest and most traded REITs in
Singapore, delivered 11.1% annually for the past
five years. The Straits Times Index (SGX: ^STI),
on the other hand, only returned 5.6% annually
during the same period.

What Are REITs?
5 Largest REITs in the Singapore Stock Market

Sudhan P. | April 6, 2018
Real estate investment trusts (REITs) are popular fall in distribution per unit (DPU) to 8.66
among Singaporeans. REITs are obliged to distribute cents for the full year ended 31 December
at least 90% of their taxable income to enjoy tax 2017. The fall was despite gross revenue for
benefits. Therefore, by investing in REITs, investors the year growing 13% to S$337.5 million and
can receive regular distributions, usually on a NPI going up 14.8% to S$265.5 million. An
quarterly basis. enlarged units base, which arose due to a rights
According to a recent report by Singapore issue in October 2017 to partially fund the
Exchange Limited (SGX: S68), Singapore’s five acquisition of the retail and office components
largest REITs (in terms of market capitalisation) of Asia Square Tower 2, took a significant toll
have a distribution yield of 5.6% on average. This is on the REIT’s DPU.
higher than the yield of the SPDR STI ETF (SGX: 4. Next in line is a diversified REIT, Suntec
ES3), which can be taken as a proxy to the Straits Real Estate Investment Trust (SGX: T82U),
Times Index (SGX: ^STI), at 3%. (Note: All market which owns both retail and office properties.
capitalisation and distribution yield data are as at 4 For the full year ended 31 December 2017,
April 2018.) gross revenue grew 7.8% year-on-year to
With that, let’s look at those five REITs and their S$354.2 million while NPI went up by 8.9% to
latest financial performance: S$244.5 million. The improvements were due
to the contribution from Australia’s 177 Pacific
1. With a market capitalisation of S$7.62 billion Highway, which was partially offset by lower
and topping the list is Ascendas Real Estate retail. The REIT has a market capitalisation of
Investment Trust (SGX: A17U), an industrial S$4.95 billion.
REIT. In the third quarter ended 31 December
2017, the REIT saw its gross revenue grow by 5. Last but not the least, Mapletree Commercial
4.1% year-on-year to S$217.3 million while its Trust (SGX: N2IU) takes the final spot with
net property income (NPI) rose 1.7% to S$157.6 a market capitalisation of S$4.55 billion. The
million. However, its distribution per unit (DPU) REIT, which has stakes in five office and retail
slipped 0.6% to 3.97 cents. assets in Singapore, saw its gross revenue for
the third quarter growing 0.8% year-on-year
2. Next on the list is retail REIT, CapitaLand to S$109.7 million. Meanwhile, NPI improved
Mall Trust (SGX: C38U). For the full year 1.9% to S$86.0 million. The REIT attributed
ended 31 December 2017, gross revenue the increases to higher contributions from
tumbled 1.1% year-on-year to S$682.5 VivoCity and Mapletree Business City I.
million while NPI slipped 0.3% to S$478.2
million. The declines were mainly due to the
non-contribution of Funan, which was closed
in July 2016 for redevelopment. Despite the
falls, 2017’s DPU inched up 0.3% to 11.16
cents. CapitaLand Mall Trust has a market
capitalisation of S$7.27 billion.
3. Coming in third and sporting a market
capitalisation of S$6.54 billion is CapitaLand
Commercial Trust (SGX: C61U). The
commercial REIT posted a 4.6% year-on-year

Do You Know the Difference Between REITs, Property Trusts,

and Stapled Securities?
Most of you have likely heard of real estate limits that are placed on REITs. Because of fewer
investment trusts, or REITs. But, do you know that restrictions, they do not receive the same tax benefits
there are also two other kinds of investment vehicles that REITs enjoy.
in Singapore’s stock market that are commonly
mistaken for REITs? These are property trusts and The lowdown on stapled securities
stapled securities. Stapled securities are listed property securities that
The two investment vehicles are similar to REITs in are a bundled combination of either REITs, property
many ways – even seasoned investors occasionally use investment companies, property trusts, or business
the three terms interchangeably. It is important to note trusts. This occurs when the investment vehicle wants
though, that there are fundamental differences between to apply a REIT model to a portion of its property
REITs, property trusts, and stapled securities. portfolio, but not to others. As such, only that part
of the property portfolio will be bounded by REIT
As investors, it is important that we are familiar
regulations and enjoy the associated tax benefits.
with these differences so that we can make informed
decisions. With that, here are the important Likewise, stapled trusts are obligated to pay the
differences between the three types of investment required distributions to their unitholders only for the
vehicles that you should be aware of. properties that are bound by the REIT structure.
The lowdown on REITs The Foolish bottom line

REITs are collective property investment trusts REITs, property trusts, and stapled securities, though
that pool money to invest in properties. Investors can similar, are actually bound by different regulations and
purchase units of a REIT through the stock exchange. consequently have their pros and cons.
But what makes a REIT different from a company As investors, we cannot oversimplify the
that invests in properties? Well, for one, a REIT is investment process by lumping all of them together.
bounded by more restrictions and regulations. They have their own risk-reward profile and can offer
In Singapore, REITs must pay out at least 90% of investors different value propositions. Hopefully, this
their distributable income to unitholders each year. article helps clarify the differences between the three
They are also limited to a maximum gearing ratio of and allows you to make more informed investment
45%. The restrictions can hinder a REIT’s business, decisions in the future.
but they do come with some benefits. For instance,
REITs enjoy favourable tax treatments compared to
other types of companies.
The lowdown on property trusts

Like REITs, property trusts also pool money to
invest in property. Investors can also buy units of
these trusts on the stock exchange.
The key difference between a property trust and
a REIT is that the former has no restrictions on the
amount it must distribute to its unitholders. Property
trusts are free to reinvest their money in any way
they wish. They are also not subjected to leverage

The Pros and Cons of Investing in REITs

Unsure whether to invest in real estate investment Key disadvantages as compared to stocks
trusts (REITs) or stocks? Well, before you make • Highly leveraged
a decision, it is important that you know the
differences between the two. REITs are usually highly leveraged investment
vehicles. This works as a double-edged sword.
In this article, I will run through some of the pros Leveraging allows REITs to purchase more assets
and cons of investing in REITs and stocks. than they have in unitholders’ equity. At the same
time, leverage poses additional risks as REITs
Key advantages as compared may face difficulty paying off its debt in difficult
to stocks times. As such, investors need to find REIT
• Predictable cash flow and dividends investments that have lower leverage to survive
through any exigencies.
Because REITs are required to give out 90% of
their income as dividends, investors should be • Unable to reinvest and grow
fairly certain that they would consistently get The fact that REITs are required to pay out 90%
dividends as long as the REIT continues to be of their income to unitholders works as a double-
profitable. REITs also tend to sign long-term edged sword too. Although unit holders can sleep
leases with their tenants. Because of this, easy knowing they can earn consistent dividends,
investors are able to predict the long-term REITs are not able to reinvest in their portfolio,
revenue of a REIT accurately. hence can remain stagnant for many years. The
• History of outperforming the market index two ways to grow are through issuing new units
that will dilute current unitholders’ equity or by
In the last five years, Singapore REITs as a increasing its borrowings from banks.
whole have returned more than the Straits
Times Index (SGX: ^STI). Even in the • Concentration risk
United States, REITs have had a history of Naturally, REITs, because of their focus on
outperforming the S&P 500, Dow Jones properties, will be affected when the property
Industrials and NASDAQ Composite indexes. market faces a downturn.
• REIT prices are less volatile
The Foolish bottom line
The beta of REITs, a measure of volatility, and
REITs and stocks can be good long-term
consequently, risk, has been historically much
investment vehicles for investors. However, knowing
lower than stocks at most times. This is because
the pros and cons of each instrument is important for
of the relatively predictable nature of REITs’ cash
investors who are deciding between the two.
flows and business.
• There are many types of REITs to choose from
There are 32 REITs to choose from in Singapore
that can be further divided into different
categories. These include healthcare, residential,
commercial, retail and mixed REITs. Investors
who are looking for overseas exposure also have
the option of choosing REITs that have a portfolio
of properties located outside of Singapore.

8 Differences Between Investing in REITs and Physical Properties

Stanley Lim Peir Shenq, CFA | December 2017
If you are reading this, you may wonder, ‘How can its down payment, renovation costs, legal fees and
I be the next Li Ka Shing or Donald Trump when stamp duties. Let’s assume that 10% down payment
I’m just a wage earner?’ Or, perhaps, you may have is required. The legal fees and stamp duties work
accumulated some savings, and you are contemplating, out to be 5% of the property price. Thus, if the small
‘Should I start investing in a small apartment for rental apartment costs $300,000, you may need to prepare
income or build a portfolio of real estate investment a minimum of $45,000 in upfront capital to consider
trusts (REITs) that generate high dividend yields?’ the purchase. In fact, you need to prepare more as
In this article, I will share eight key differences you may need to do some minor renovation and
between investing in the two. From this, I believe service your mortgage.
it would help you to decide which of the two you What about REITs? You can start investing in REITs
should go for. with just a few hundred dollars. Of course, that is not
advisable as the transaction costs are relatively high.
Loan Eligibility It is best to invest a minimum of $3,000 to make the
This varies between banks and the country of your investment more meaningful and worthwhile. Thus, if
residence. In general, you should maintain a good you do not have much capital to start with, you may
credit score at all times so that you can qualify to consider REITs as an investment option.
get a loan to buy properties. If you are currently
eligible for a mortgage, perhaps, you should invest in Liquidity
physical properties. However, if you are not eligible Selling a physical property could be a major
for mortgages, then, your best alternative may be to decision for you. You may have to advertise and
invest in REITs. negotiate to find the right buyer who offers a good
price for your property. The whole process could take
Growth months or even years before the sale of your property
How fast are you able to grow your investment is concluded.
portfolio? Well, it depends on your financial status It is different for REITs as you can buy and sell
which impacts the maximum amount of mortgage REITs like any stock listed on the stock exchange
that you can qualify for. If you intend to borrow with just a few clicks of the button. There is usually
more, then, you need to grow your income. Thus, the always a ready buyer and a ready seller who is
ability to grow your portfolio of physical properties willing to buy your units in REITs. Here, there are no
is dependent on your ability to grow your income. advertisements, negotiations and real property gain
However, this is not the case for REITs. They tax to be incurred from the disposal of your REITs.
usually have stronger financial positions compared Thus, REITs are more liquid as the process of buying
to any individual on the street. Hence, they are more and selling the units are easier and convenient than
efficient and more capable of raising funds from banks physical properties.
and new investors to finance their acquisition of new
properties, thus, growing their portfolios. As such, Quality of Tenants
the portfolio growth in REITs is dependent on their If you invest in REITs, you will derive income
financial positions, not yours as individual investors. from a pool of commercial tenants. These tenants
vary according to the type of REITs you choose.
Capital For instance, if you buy a retail REIT, you would
If you are planning to buy a small apartment, you expect to receive income from retailers. If you buy
may need to prepare a sum of capital which includes

hospitality-based REITs, you would expect income capital gains if their prices appreciate. It is similar
from the operations of hotels. to investing in physical properties where you
When you buy REITs, the quality of tenants is receive rental income and enjoy long-term capital
usually far more superior than one individual who appreciation.
intends to occupy your apartment. This is because The difference lies in their tax treatment. Once
they typically have stronger financial positions, again, their treatment would differ according to your
a brand and a reputation to protect. Thus, there is country of residence.
lesser risk of rental default from commercial tenants For instance, you may not need to pay income
as compared to tenants we get from renting out tax on distributions received from REITs. However,
properties. you would most likely pay income tax on rental
income from your small apartment. Hence, it is wise
Lease Periods to consider tax issues before you venture into any
Lease tenure varies according to the type of investment.
properties. For instance, it is common for retail
leases to be around three years. Meanwhile, leases The Foolish Takeaway
to the hotel and hospital operators have a duration of Should you go for a small apartment or build a
10 – 20 years. REIT portfolio? Once again, it depends on your
If you intend to rent out a small apartment, the personality, financial standing, and investment
tenancy agreement is usually for a shorter period. motives. It is prudent to explore and evaluate the pros
The duration may vary between six, 12 or 24 months, and cons of each investment vehicle before investing
subject to the common practices of the rental market to make prudent investment decisions.
in a country. The continuity of your rental income
depends on your ability to attract, retain and collect
money from your respective tenant for as long as you
possibly can.
Would you like to receive uninterrupted income
consistently from making a one-time investment in
a REIT over the next five, 10 or 20 years, or worry
about fluctuations in your rental income?
Management
I believe there are two main objectives of property
management. Firstly, it is about collecting money
from tenants as much and as efficiently as possible.
Secondly, it is about enhancing the value of the
property over the long-term. It involves continuous
maintenance of properties – from minor repairs to
major renovations and refurbishments.
If you invest in a small apartment, then, it may
certainly be helpful to have a reliable handyman or
a contractor to assist you in this area if you wish to
delegate. If you invest in REITs, you are relying on
the professional expertise of the appointed property
managers to carry out a good job to manage the
properties within the portfolio.
Tax Issues
If you invest in REITs, you will receive
distributions as a form of passive income and enjoy

Why I Invest in REITs Over Treasuries and Corporate Bonds

Jeremy Chia | April 30, 2018
With interest rates set to rise this year and REITs Limited downside risks
having generally richer valuations compared to last
annum, many investors may be tempted to switch As with any publicly traded security, REITs are
from REITs to historically safer assets such as susceptible to volatility and changes in prices.
treasuries or corporate bonds. Distributions per unit may also decrease over time.
However, the long-term trend of REITs in Singapore
However, I feel that switching from REITs to bonds suggests that REITs are unlikely to underperform
may end up dragging your investment returns over for extended periods.
the longer term – even as interest rates rise. Don’t
get me wrong, I absolutely agree that treasuries and REITs in Singapore need to maintain a gearing ratio
corporate bonds are perhaps safer options than REITs. of 45%. Because of that, REIT managers, no matter
Bonds and treasuries have a stable coupon rate and how gung-ho, have to keep their balance sheet in check
the principal (if held to maturity) is more secured for the authorities. Although it may limit their growth,
than REITs. The rising interest rate environment will it means that they are unlikely to face liquidity issues.
also increase the yield on both bonds and treasuries, Real estate also tends to have a much more
while it will be a drag to a REIT’s profitability due to a consistent and stable income stream than companies.
generally higher interest expense. This means that volatility in REIT prices have
Having said that, I believe REITs still possess historically been much lower than traditional stocks.
much greater long-term potential than both treasuries
and bonds. REITs generally have a higher yield, and
Distributions growth
the property market — despite its cyclical nature Finally, and perhaps the most appealing aspect
— historically always ends up outperforming bonds about REITs, is the fact that REITs, unlike bonds are
and treasuries over the long term. So here are three able to grow its distributions each year. If a REIT
reasons why I will still choose REITs over other manages its capital well and is able to improve the
income-producing assets. yield on its properties, they can grow its distributable
income, rewarding shareholders in the process.
Higher yields For instance, some REITs listed in Singapore have
REIT prices in Singapore surged last year, as most grown its DPU by 6-7% a year. That means that
investors were bullish about the property market. in 10-12 years, its DPU would have doubled. If an
However, even at these prices, REITs still offer unit investor had initially purchased the REIT at a yield
holders a much higher yield than most bonds and of 6%, he would be enjoying a 12% yield on his
treasuries. At the time of writing, the lowest yielding investment. This is a huge upside that REITs have
REIT has a distribution yield of 4.67%, while the over bonds and treasuries, which have a fixed rate
highest is yielding 8.71%. throughout their lifespan.
The 30-year government bonds are 2.9%, while
one-year treasury bills have a yield of just 1.59%.
High yielding corporate bonds have a coupon rate of As an investor, I am personally always looking
3 to 5.3%. Even perpetuities, where investors do not for the best risk-reward investments. As shown from
get their principal back, have a yield of just 6%. above, I think REITs undoubtedly have a much larger
reward profile than bonds and treasuries. Furthermore,
You may be wondering how sustainable REIT’s
the limited downside risk makes them a relatively safe
yields are. Well, REITs in Singapore have historically
investment. I am confident in saying that investors
performed very well. Properties also tend to grow in
who choose REITs over bonds will most likely feel
value, meaning the REITs book value will increase
very happy about their decision over the long term.
over time. This makes it an even more attractive
proposition for investors.

S-REIT regulations
New REIT Regulations: What Investors Need to Know

Chong Ser Jing | July 3, 2015
Yesterday evening, the Monetary Authority of Think about it this way. Say you had 100 units of
Singapore (MAS) issued a list of changes to the a REIT in 2010 and after five years in 2015, you still
regulations affecting real estate investment trusts own the same 100 units.
(REITs) in Singapore. Over that period of time, the REIT’s distributions
The MAS had first announced back in October grew by 100% from S$100 million to S$200
2014 that it wanted to refine REIT regulations and had million; that’s a very commendable performance.
come up with a list of proposed changes. After inviting But because its unit count had doubled from
feedback from the public and thinking through them 100 million to 200 million as a result of private
for a number of months, the MAS has settled on the placements and the payment of management fees
changes, which were released yesterday evening. with new units, the REIT’s distribution per unit had
Here’re some of the important ones (along with stayed flat at S$1. And you, as the investor, would
my comments). not have any added benefits whatsoever despite the
REIT having doubled its distributions.
On changes to the fee structure So, keep an eye on whether a REIT’s Manager’s
“MAS will not intervene on the structure of fees or fees are based at least partly on growth in the REIT’s
types of fees that Managers charge, but will require per unit figures. If that’s not the case, then take a hard
them to disclose the justification for each type of look at the justifications given by the Manager and
think it if makes sense.
fees charged. Managers will also have to explain the
methodology for computing performance fees, and With all that said, it’s worth stressing that having
justify how this methodology takes into account the right incentives is no panacea for a winning
unitholders’ long-term interests.” investment. Hutchison Port Holdings Trust (SGX:
NS8U) had fee structures which are very much
Investor maestro Charlie Munger has described aligned with unitholders’ interests. Sadly though,
incentives as one of the most important forces that can its total return (including gains from reinvested
shape human behaviour. To that point, Munger once dividends) from the close of its first-day of trading
said, “I think I’ve been in the top 5% of my age cohort in March 2011 to today is a negative 10.5%. There
all my life in understanding the power of incentives, are many other important factors to consider – such
and all my life I’ve underestimated it.” as the type and quality of the properties in a REIT’s
With the right incentives in place in terms of portfolio – when making an investment.
Manager fees that are aligned with unitholders’ long-
term interests, investors in REITs can thus stand a On changes to leverage limits
better chance of having a profitable experience. “The leverage limit imposed on a REIT will be
But what should unitholders look out for? This increased from 35% to 45% of the REIT’s total assets,
ties back to what truly drives the economic value of but a REIT will no longer be allowed to leverage up to
a REIT and that is, growth in its per unit figures like 60% with a credit rating.”
its distributions and net asset value. Warren Buffett, REITs in Singapore have so far been rather
Munger’s long-time business partner and an even disciplined in terms of risk-taking. When the MAS
larger investing father-figure, once said (emphasis first announced its proposals to change REIT
mine), “We do not measure the economic significance regulations last October, it mentioned that “most
or performance of Berkshire [the conglomerate [REITs]… have kept their leverage ratios within 35%”
controlled by Buffett] by its size; we measure by even though two-thirds of them had credit ratings and
per-share progress.” could thus have geared themselves up to 60%.

But, greater leverage comes with higher risks.
As such, investors may still want to keep an eye on
how the balance sheets of their REITs are changing
given that they now have more leeway to take on
more borrowings.
On changes to remuneration
policies
“Managers will be required to disclose their
remuneration policy and procedures in the REITs’
Annual Reports.”
With better disclosure, investors can then make
sounder judgements on whether the policies
are reasonable or not. This is similar to the fee
structure changes mentioned earlier in the sense
that remuneration polices which are aligned with
unitholders’ interests can help increase the odds that the
REIT will be a good investment for the latter group.
Some yellow flags to watch out for could be
remuneration policies for management personnel
which does not take into account, or only gives
little consideration to, growth in important
drivers of a REIT’s economic value such as those
mentioned earlier.
A Fool’s take
There’re a lot more to the new regulations
governing REITs and the complete list can be found
on MAS’ website. The changes to the rules will
be implemented in phases starting from 2016; in
particular, REITs will have to start adhering to the
new disclosure standards for Manager fees by the
first Annual General Meeting of the financial year
ending on or after 31 December 2015.

REIT Structure
What Investors Should Know About a Typical REIT Structure

Using Frasers Centrepoint Trust as an Example
Sudhan P. | July 13, 2018
Real estate investment trusts (REITs) offer an Trustee

alternative to owning properties.
A trustee holds the underlying properties of a REIT
Under a REIT structure, investors’ (called on behalf of unitholders. The trustee’s role is to ensure
unitholders) money is pooled together to invest in that the REIT is complying with all applicable laws,
a portfolio of income-generating real estate such as and that the rights of unitholders are protected. In
offices, hotels, hospitals, and shopping malls. Just exchange for providing the services, the trustee is paid
like stocks, they can be bought and sold on a stock a fee. For Frasers Centrepoint Trust, the trustee’s fee is
exchange. In return for their capital, unitholders 0.1% per year of the value of the REIT’s properties.
receive regular distributions from the REITs.
The first Singapore REIT, CapitaLand Mall Trust Manager (or REIT manager)
(SGX: C38U), was listed in July 2002. It is also the The REIT manager is a separate company set
largest retail REIT by market capitalisation of S$7.4 up to run the REIT. It is usually a wholly-owned
billion, as at 31 March 2018. It retail peer would be or partly-owned subsidiary of a REIT’s sponsor
Frasers Centrepoint Trust (SGX: J69U), which is (more on sponsors later). The chief executive officer
also a retail REIT that owns shopping malls such as (CEO) of a REIT manager is just like the CEO of
Causeway Point and Changi City Point. any listed company.
Since REITs have a structure that is different from The central role of a REIT manager is to set the
listed companies, it would be useful to go through strategic direction for the REIT, and enhance the
a typical trust structure to help investors better REIT’s property value to maximise rental income,
understand REITs. which leads to higher distributions for unitholders.
Let’s use Frasers Centrepoint Trust’s structure as an A REIT manager also supervises a property
example here. manager (explained below) in its day-to-day
management of the assets.
REIT managers are paid recurring management
fees for their services. Frasers Centrepoint Trust’s
manager receives a base fee of 0.3% per annum of
the value of the REIT’s properties and a performance
fee of 5% per year of the net property income (NPI).
The manager can choose to receive the payments in
cash or units, or both.
Frasers Centrepoint Trust’s manager is also entitled
to receive an acquisition fee of 1% of the acquisition
price and a divestment fee of 0.5% of the sale price on
all acquisitions or disposals of assets.
Property manager
The property manager takes care of the day-to-day
operations of the properties in the REIT’s portfolio.
This includes daily upkeep of the properties, running
Source: Frasers Centrepoint Trust corporate website marketing events to attract tenants or shoppers (in the

case of shopping malls), and ensuring the best tenancy
mix to maximise rental income.
In return, the property manager is paid a property
management fee. For Frasers Centrepoint Trust, the
property management fees are 2% per annum of gross
revenue, and 2% to 2.5% per year of NPI.
Sponsor (not present in all REITs)

One thing missing from the flowchart above is
the sponsor. In Frasers Centrepoint Trust’s case, the
sponsor is Frasers Property Ltd (SGX: TQ5). Not all
REITs have a sponsor.
A sponsor typically supplies the properties to be
placed into the REIT’s initial portfolio, and may
continue to provide a pipeline of assets for the REIT.
Most of the time, the sponsor also owns large stakes in
the REIT manager, and the REIT.
Frasers Property, which has full ownership of
five retail malls in Singapore, except for one, could
inject these properties into Frasers Centrepoint
Trust’s portfolio in the future. The five properties
are Northpoint City South Wing, Robertson Walk,
Valley Point, The Centrepoint, and Waterway Point
(33.3% ownership).
As of 24 November 2017, Frasers Property had a
41.86% stake in Frasers Centrepoint Trust.
The Foolish takeaway

Understanding the different players in typical REIT
structure helps investors to better appreciate how
REITs function. Armed with this knowledge, they
can make a more informed decision when investing
in REITs. Some REITs with overseas properties may
have additional layers, but the main trust structure is
usually the same as what we have seen above.

Different Type of REITs Available
8 Different Types of REITs and Stapled Trusts Listed in Singapore

There are around 40 real estate investment trusts Industrial

(REITs) and stapled trusts in Singapore currently.
The REITs and six stapled trusts had an average The industrial sub-segment covers properties
distribution yield of 6.7%, as of 6 July 2018. The such as factories, warehouses and business parks.
figure is an average, so some REITs will have an Singapore’s largest REIT in terms of market
above-average yield while others will be below- capitalisation comes from this sub-sector, and
average. A REIT’s distribution yield can be affected that is Ascendas Real Estate Investment Trust
by a number of factors; one such factor is the sub- (SGX: A17U). Industrial REITs usually have high
segment in which the REIT operates in. distribution yields due to the short 30-year leases
that most Singapore industrial properties have as
With that in mind, let’s look at the various compared to retail or office real estate.
sub-segments a REIT or stapled trust operate in, as
categorised by the Global Industry Classification Others industrial REITs include AIMS AMP
Standard (GICS). Capital Industrial REIT (SGX: O5RU), Cache
Logistics Trust (SGX: K2LU), Mapletree Industrial
Retail Trust (SGX: ME8U) and Mapletree Logistics Trust
(SGX: M44U).
This sub-segment holds real estate used for retail
activities such as shopping centres, something that Office
most investors would be familiar with. To know if
a certain shopping mall is doing well, investors can This sub-segment owns properties that are used
simply walk into the mall and observe the shopper for office or commercial purposes. The largest office
traffic, the type of tenants, and whether the mall REIT listed here is CapitaLand Commercial Trust
is fully occupied with tenants. The popularity of (SGX: C61U). In recent times, the distribution yields
retail REITs could be why it tends to provide lower for some office REITs have been falling due to higher
distribution yields as compared to other REIT REIT unit prices resulting from a pickup in the
sub-segments. commercial sector.
Retail REITs with assets solely in Singapore Other listed commercial REITs include Frasers
include CapitaLand Mall Trust (SGX: C38U), Commercial Trust (SGX: ND8U), Keppel REIT
Frasers Centrepoint Trust (SGX: J69U) and SPH (SGX: K71U) and Manulife US Real Estate
REIT (SGX: SK6U). Investment Trust (SGX: BTOU).
Retails REITs such as CapitaLand Retail China Hotel & Resort
Trust (SGX: AU8U), Lippo Malls Indonesia Retail
This sub-segment hosts hospitality-related properties
Trust (SGX: D5IU) and BHG Retail REIT (SGX:
such as hotels and serviced residences. The entities
BMGU) hold overseas retail properties.
in this sub-segment are often structured as a stapled
Starhill Global Real Estate Investment Trust trust. Stapled trusts in the hotel and resort sub-sector
(SGX: P40U) owns a mix of both local and include CDL Hospitality Trusts (SGX: J85), Frasers
overseas properties. Hospitality Trust (SGX: ACV) and OUE Hospitality
Mapletree Commercial Trust (SGX: N2IU), which Trust (SGX: SK7).
owns both retail and office properties, is classified
as a retail REIT under the GICS. The trust owns five Healthcare
properties, including VivoCity, Singapore’s largest REITs in this sub-segment hold healthcare-
retail mall, and Mapletree Business City. related assets such as hospitals and nursing homes.

Due to their resilient and stable nature, healthcare
REITs are popular among investors. Therefore,
such REITs usually offer lower distribution yields
and trade at a premium to their book values as
compared to other REITs.
REITs in the healthcare sub-segment are First
Real Estate Investment Trust (SGX: AW9U) and
Parkway Life REIT (SGX: C2PU).
Others: Specialized, Diversified

and Residential
There are other REITs and stapled trusts that do not
fall into the sub-segments discussed above. Keppel
DC REIT (SGX: AJBU), which owns data centres,
falls under the specialized sub-sector.
Mapletree North Asia Commercial Trust (SGX:
RW0U), formerly known as Mapletree Greater China
Commercial Trust, is a diversified REIT. REITs such
as Viva Industrial Trust (SGX: T8B) and Suntec
Real Estate Investment Trust (SGX: T82U) are also
classified as diversified REITs. Meanwhile, Ascott
Residence Trust (SGX: A68U) is a residential REIT.

REIT Financial Statements
How to Choose the Best REITs to Invest In?

Sudhan P. | June 26, 2018
When it comes to investing in real estate

investment trusts (REITs), most investors look at the
distribution yield as part of their decision-making
process. However, the distribution yield of a REIT
tells us nothing about the sustainability of its
distributions, nor the strengths or weaknesses of the
REIT’s business.
Instead of focusing solely on a REIT’s
distribution yield, REITs investors should also look
at other factors. Only then can they make a more Source: First REIT 2017 earnings presentation
informed investing decision with a REIT. Here are
I also look at whether a REIT’s distributable
the important factors I look at.
amount and distribution per unit (DPU) are
improving consistently every year, apart from its
Growth in the basic numbers gross revenue and NPI. Taking First REIT as an
Firstly, I like to investigate whether a REIT’s example again, its distributable amount and DPU
gross revenue, net property income (NPI), and can be seen to be rising steadily from 2011 to 2017
distribution to unitholders are growing consistently from the following chart:
on an annual basis.
Gross revenue is the income that a REIT earns
through rent, operation of car parks, and so on. After
deducting property-related expenses such as property
management fees, property taxes, and maintenance
expenses, we arrive at the NPI figure.
The chart below is an example from First Real
Estate Investment Trust (SGX: AW9U) that shows
growth of its gross revenue and NPI from 2007 to
2017. First REIT is a healthcare-focused REIT. Source: First REIT 2017 earnings presentation
Property yield
The property yield is the NPI divided by the
valuation of the properties held in a REIT’s
portfolio. This metric reveals the intrinsic strength
of the REIT’s underlying properties, and is more
critical than calculating the REIT’s distribution
yield (as the distribution yield is a function of the
REIT’s unit price).
In 2017, First REIT had an NPI of S$109.5
million and S$1.35 billion in investment

properties. This equates to a property yield of which is a valuation metric. Other valuation metrics
8.1%. Property yields in the range of 5% to 9% are involve looking at the REIT’s capitalisation rate, net
great, in my opinion. asset value, or replacement cost.
The property yield can then be compared on
either a yearly basis to look for trends, or with other
The Foolish takeaway
REITs operating in the same industry. For example, Recently, my Foolish colleague, Jeremy Chia,
Parkway Life REIT (SGX: C2PU), another highlighted in his article that Cache Logistics
healthcare REIT, only had a property yield of 5.9% Trust (SGX: K2LU) had a distribution yield of
in 2017. In another instance, the two retail REITs, 8.3%. This is one of the highest yields in the
CapitaLand Mall Trust (SGX: C38U) and Frasers Singapore stock market.
Centrepoint Trust (SGX: J69U), had property However, after digging a little deeper, investors
yields of 5.8% and 4.9%, respectively, in 2017. would realise that the REIT has a relatively high
gearing ratio, and an unhealthy interest coverage
Gearing and interest coverage ratios ratio. These factors could ultimately put Cache
The gearing ratio and interest coverage ratio reveal Logistics Trust’s DPU at risk. Therefore, Foolish
the strength of a REIT’s balance sheet. investors should always look beyond distribution
The gearing ratio is calculated by dividing the yields when buying REITs.
total debt of a REIT by its total assets. As of 31
December 2017, Parkway Life REIT had a gearing
ratio of 36.4%. REITs in Singapore have a gearing
limit of 45%, as required by the Monetary Authority
of Singapore.
The interest coverage ratio is derived by dividing
a REIT’s NPI by its finance costs. At the end of
2017, Parkway Life REIT had an interest coverage
ratio of over 10. This shows that even if the REIT’s
NPI were to decline by 60%, it would still be able
to service its debt. I like to look for an interest cover
ratio that is above 4.
Other metrics to look at

Investors must also look at general operating
metrics such as the REIT’s portfolio occupancy
rate, and other metrics specific to a REIT. Two
REIT-specific metrics for retail REITs would be
shopper traffic numbers and tenants’ sales. For
hospitality REITs, investors can look at the revenue
per available room and average daily rate.
I also like to look at a REIT’s funds from
operations (FFO) and adjusted funds from
operations (AFFO). FFO strips off cost-accounting
methods such as depreciation of investment
properties that may inaccurately distort a REIT’s
cash-generating ability. The FFO is akin to the
operating cash flow of a company, while the AFFO
is like a company’s free cash flow.
Only after looking at all the factors mentioned
above do I look at the distribution yield of a REIT,

REIT Valuation
Valuing REITs: A Quick Primer

Real estate investment trusts (REITs) cannot As of 30 March 2018, Lippo Malls Indonesia
be valued by the typical price-to-earnings (P/E) Retail Trust had a NAV of S$0.30 per unit. This
ratio as their earnings are distorted by revaluation means that at a unit price of S$0.32, it is trading
of investment properties, change in fair value of at a P/B ratio of 1.07 ((S$0.32/S$0.30) x 100%).
derivatives, and so on. In other words, it means that investors who invest
How else can REITs be valued then? Let’s look at in Lippo Malls Indonesia Retail Trust are paying
some common ways of evaluating them. S$1.07 for S$1 worth of the REIT’s net assets.
Some REITs trade at a massive premium to their
Distribution yield NAV as the market perceives them to be safer or to
The distribution yield shows how much an possess strong fundamentals.
investor receives in distribution per unit (DPU)
for the unit price paid for a REIT. Since REITs are
Capitalisation rate
required to distribute at least 90% of their taxable Capitalisation rate, or cap rate, is a measure of the
income to their unitholders in order to enjoy tax return on investment of a property. It is derived by
benefits, many REITs have high distribution yields. taking the net property income (NPI) of a property
As of 6 July 2018, the average distribution yield for and dividing it by its value. For example, in 2017,
Singapore REITs was 6.7%. CapitaLand Mall Trust’s (SGX: C38U) Tampines
Mall had a valuation of S$1.05 billion and an NPI
Let’s go through a simple example to learn
of S$58.3 million. Therefore, its cap rate was 5.6%.
how to calculate a REIT’s distribution yield.
Retail REIT Lippo Malls Indonesia Retail Trust The cap rate can also be calculated on a portfolio
(SGX: D5IU)has a DPU of S$0.0322 for the last level and is sometimes known as the property yield.
12 months. At its unit price of S$0.32 at the time During the same year, CapitaLand Mall Trust had
of writing, it has a distribution yield of 10.1% an NPI of S$478.2 million and a portfolio value of
((S$0.0322/S$0.32) x 100%). S$8.31 billion, giving a capitalisation rate of 5.8%.
Most investors are usually enticed by a high Cap rates should be compared between REITs of
distribution yield. However, there are many reasons the same type to give an apple-to-apple comparison.
for a REIT’s yield to be higher than that of another
REIT. For one, poor economic fundamentals The Foolish takeaway
surrounding a REIT could cause its unit price to fall, The distribution yield, P/B ratio, and cap rate are
increasing its distribution yield as a result. not the only valuation methods that investors can use.
We should focus on a REIT’s DPU track record There are other ways of valuing REITs, such as the
instead of its distribution yield alone. price-to-funds-from-operations ratio, the replacement
cost method, and comparable sales method.
Price-to-book ratio However, investors should not be too hard up on
The price-to-book (P/B) ratio is computed by any particular valuation method as valuing a stock
taking a REIT’s current market price and dividing it or a REIT is more art than science. Sticking to
by the REIT’s latest reported net asset value (NAV) simple valuation methods mentioned in the article
per unit. The NAV of a REIT is calculated with the should do the trick.
simple equation of total assets minus total liabilities.
A P/B ratio below 1 shows that a REIT is trading at
a discount to its NAV.

3 Factors to Consider When Investing in REITs

Real estate investment trusts (REITs) have been management team is reliable and skilled?
performing well in the last five years, beating the
A good way to assess a management team is to
broader stock market index by around five percentage
simply do a quick Internet search on the members
points. However, not all REITs have performed
of the team and look out for any red flags, such
equally well. Some have lagged behind their peers,
as previous misdeeds or fraud. Good indicators
while others have outperformed considerably. As
of a strong manager are having experience in the
investors, we are always striving to find the best
industry, having a clean track record and having a
investment to grow our wealth and looking for these
proven ability to grow the REIT.
outperformers can make a huge difference.
With that in mind, I would like to point to three The Foolish bottom line
characteristics of a REIT that I look for when On average, REITs in Singapore have performed
investing. admirably. However, not all REITs have done
equally well. Some have only returned 5% a year,
Consistently high occupancy rate while others have returned more than 20% a year.
A high occupancy rate means that the REIT Obviously, that is a huge difference and finding the
can lease out most of its leasable area and can high performing gems can make a big difference to
maximise the return on its properties. A REIT that our portfolio. Hopefully, this article gives us a good
can consistently maintain a high occupancy rate over stepping stone to finding those REIT darlings that
many years shows the strength of the management can help grow our portfolio even more.
team in utilising its assets and maintaining a healthy
relationship with its tenants.
The stable occupancy rate also makes revenue
more predictable, and investors can be assured of
sustainable and stable dividends.
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, we should 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.
A strong management team

Managing a REIT takes skill and experience. As
such, not every management team can do a good job.
As investors, we need to ensure that our investments
are in safe hands. However, how do we know if the

How to Identify REITs That Have a Portfolio That Can Appreciate

in Value
A REIT with a portfolio of properties that can Assets located in high-growth

appreciate in value over the long term can reward
unitholders in two ways. markets
Firstly, it can unlock unitholder value when it REITs that have assets that are strategically
sells the asset at a profit. Secondly, a portfolio that located in high-growth areas are also more likely to
appreciates in value increases the book value of experience asset revaluations.
the REIT, thereby giving it a larger asset base to Take CapitaLand Retail China Trust (SGX:
increase its debt load to fund further acquisitions; AU8U) for example. The REIT owns a portfolio
this could, in turn, increase the REIT’s distributions of 11 retail malls in China. I will take one of its
to unitholders. properties – CapitaMall WangJing – as a point of
So, how can investors identify REITs that have reference. CapitaMall WangJing is a shopping mall
portfolios that could potentially grow in value? Here located in the densely populated residential suburb
are two things to look at. of Wangjing in Beijing.
Because the property is located in such an
Free-hold or long land-lease optimal market, it has seen positive revaluations
tenures consistently over the past few years; its value has
grown from RMB 1.43 billion in June 2011 to RMB
The length of the land-lease tenures of a REIT’s 2.38 billion currently. The growth has happened
property portfolio is crucial in predicting its likelihood despite the fact that the property sits on a piece of
to appreciate in value. Properties that sit on land that land with a relatively short lease (expiry is in 2043).
are free-hold are more likely to increase in value over
time, whereas properties that are on land with short The Foolish bottom line
lease tenures are likely to start depreciating in value as
the land-lease maturity date approaches. Positive revaluations of a REIT’s properties
may not directly lead to cash inflows for the REIT.
A case in point is Parkway Life REIT However, it is still essential that investors do not
(SGX:C2PU), which has properties that are either on underestimate the importance of such revaluation
free-hold land, or land with long leases. Partly because gains. Not only can the REIT realise its gains in
of this strategy, the REIT has managed to report the future, but it is also important in improving the
valuation gains in its portfolio on a very consistent REITs ability to take on more borrowings, which
basis. For instance, its properties had a valuation gain can fuel future growth.
of S$26 million in 2017, S$18.2 million in 2016, S5.7
million in 2015, and S$45 million in 2014.
This consistent growth in the value of Parkway Life
REIT’s portfolio provides a larger asset base on which
it can borrow more to further expand its portfolio.
On the point about borrowing, REITs have a
regulatory gearing limit of 45%, where the gearing
ratio is calculated by dividing total debt by total assets.
From this, you can see that having a high asset base
enables more debt to be taken on by a REIT.

How to Sieve out the Best REITs from the Rest?

Jeremy Chia | May 16, 2018
Real estate investment trusts, or REITs, with its Generally, REITs that have a larger proportion
exposure to real estate and its relatively high and of hedged or fixed-rate debt are less likely to be
sustainable distribution yield, have certainly been affected by interest rate hikes in the future.
a popular investment choice of late. But with so
many REITs in the market, choosing the one that can Debt maturity profile
provide market-beating returns can be tough. The debt maturity profile refers to the date
Thankfully, one thing that I believe can give when borrowings are due. Investors can find the
investors a head start is by looking for REITs that debt maturity profile in a REIT’s annual report or
have prudent debt management strategies. A REIT quarterly presentations.
that has managed its debt prudently is more likely to There are two things that investors need to assess
be able to have the financial muscle in the future to here. One, the longer the debt maturity profile, the
withstand any economic downturns and to expand its better as the REIT does not have to worry about
portfolio when the opportunity arises. rising interest rates until the debt matures. Two,
With that in mind, here are three aspects of a the REIT’s debt should mature over a staggered
REIT’s debt management that investors should take period. This reduces the risk that the REIT needs to
note of. refinance all of its debt in a period of high-interest
rate environment.
Source of borrowings
REITs use a variety of sources of borrowings.
These include bank loans, bonds, revolving credit A REIT’s debt profile can tell the investor many
facilities, and equity fundraising. They can also things. It gives us a better idea of how prudent
either borrow money onshore or from offshore and well managed the REIT is. It can also help us
sources. identify REITs that have the financial muscle to
expand its portfolio through any debt headroom that
Ideally, a REIT that can utilise multiple sources
it has. Hopefully, this article gives REIT investors
of debt financing demonstrates its financial
a clearer idea on how to assess a REIT’s debt and
flexibility and ease at which it can borrow money
how to sieve out the good investments from the
for expansion. It also signals that the REIT has the
poor ones.
confidence from its creditors that it has the financial
muscle to pay off its loans.
Hedging strategies
REITs tend to reduce their interest rate risks by
putting hedging strategies in place. Hedging could
be achieved through the use of interest rate swaps or
the issuance of fixed-rate bonds.
By analysing how much of a REIT’s debt is
hedged or on a fixed rate, we can better assess
whether an interest rate hike will affect the REITs
profitability in the future.

3 Factors to Consider When Analysing a REIT

Jeremy Chia | April 5, 2018
Real estate investment trusts (REITs) have been investors how much debt the REIT has incurred
a popular investment choice of late. REITs offer relative to its equity.
investors exposure to real estate but are less capital
A low gearing ratio is essential for REITs that
intensive and more liquid investments than buying
want to expand in the future as they can take on
your own property. REITs in Singapore have also
more debt. On the flip side, REITs that are highly
proven to be good investments of late, returning more
leveraged are unlikely to be able to increase their
than 10% returns per annum over the last five years.
borrowings and hence, cannot expand their portfolio
If you wish to invest in REITs, you should without further equity fund raising.
familiarise yourself with some key aspects of a
REIT. Here are three factors that I consider when The Foolish bottom line
investing in a REIT. REITs, in general, have performed admirably
in the past. However, investors should not get
Property portfolio of a REIT complacent and choose any REIT that is offering
The property makeup of a REIT is the first factor the highest dividend yield. Instead, we should do
of consideration when deciding whether to invest in our research to find REITs that can sustain their
it. What investors should look out for is a property performance over time. To summarise, investors
portfolio that is diversified geographically and should look for REITs with a diverse property
across multiple sectors. This helps to mitigate any portfolio, a long WALE and low gearing ratio.
concentration risk.
Another useful way to assess the REIT portfolio
is to go down in person to view the properties of
the REIT. Investors should look out for properties
that are clean, well looked after and multi-tenanted.
Ideally, there should be no units left untenanted
without a good reason.
Weighted average lease expiry

As investors, we want to know how stable the
REIT’s revenue and income will be. The weighted
average lease expiry (WALE) is the average number
of years till the current lease contracts expire.
This figure is usually released to investors during
quarterly reports.
WALE is measured by taking into account all of
the tenants’ remaining leases. The longer the WALE,
the more stable and predictable the rental income of
the REIT is.
Gearing ratio
A key factor that I look at when choosing a
REIT to invest is the gearing ratio. This ratio tells

4 Types of REITs to Avoid

Real estate investment trusts (REITs) allow million new units, were offered at a price of S$1.676
investors to gain exposure to the property market apiece. The issue price was at a discount of around
with very little capital outlay. On top of that, these 3% to the volume-weighted average price for the
investment vehicles usually have dividend yields REIT for trades done on 16 May 2018.
that are way higher than the general market, making
It can be seen that existing unitholders were
them even more attractive.
diluted as a result of the private placement as
Having said that, not all REITs make good they could not take part in it. Any REIT that has
investments. Here are some types of REITs that conducted excessive private placements should
investors should be wary of. be avoided as retail unitholders will have their
stakes in the REIT diluted in the future if more
Highly-leveraged REITs placements are organised.
REITs in Singapore have a gearing ratio limit of 45%,
as mandated by the Monetary Authority of Singapore.
Declining distribution per unit
The gearing ratio is calculated by taking a REIT’s total Investors in REITs should look out for consistent
borrowings and dividing it by its total assets. growth in the distribution per unit (DPU). An
increasing DPU in every year signals to the market
Generally, I prefer REITs to have a leverage ratio
that the REIT’s assets are stable and can attract
of below 35%. This ensures that if the economy
quality tenants. On the other hand, a falling DPU
were to take a sudden downturn, there would still be
shows that a REIT is struggling to increase rents and
a margin of safety before the 45% limit is breached.
its prospects are likely not that great.
If the 45% cap is hit, the REIT will have to raise
For example, healthcare REIT, First Real Estate
funds through other means such as through a rights
Investment Trust (SGX: AW9U), has seen its
issue or private placement to pare down debt and
annual DPU climb from 8.30 Singapore cents in
bring its gearing ratio down to a more palatable
2015 to 8.57 Singapore cents in 2017. In contrast,
level. During the 2008-2009 Global Financial
AIMS AMP Capital Industrial REIT(SGX: O5RU),
Crisis, some REITs had to undertake rights issues
an industrial REIT, has been facing headwinds in
at considerable discounts to their-then unit prices to
its industry and this shows up in its falling DPU
keep their debt levels manageable.
over the years; in its fiscal year ended 31 March
Excessive private placements 2016 (FY2016), the REIT paid a DPU of 11.35
Singapore cents, but this had declined to 10.30
Private placements happen when a REIT sells Singapore cents in FY2018.
its units to a specific group of investors. Unlike a
rights issue where retail investors such as you and At their current unit prices, First REIT has a
me can participate, private placements are reserved distribution yield of 6.7% while AIMS AMP Capital
for a select group of investors such as institutional Industrial REIT sports a yield of 7.3%. Based on
investors or wealthy individuals. their yields alone, AIMS AMP Capital Industrial
REIT looks more attractive. But when we look at the
An example of a REIT that recently conducted REITs’ DPU track record, First REIT looks better.
a private placement exercise is CapitaLand
Commercial Trust (SGX: C61U). The commercial Therefore, when investing in REITs, we should
REIT raised gross proceeds of S$217.9 million from a not rely on a REIT’s distribution yield alone. We
private placement to partially fund a new acquisition should also look at its DPU track record to make a
in Germany. The placement, which comprised of 130 more-informed decision.

High valuation
I generally avoid REITs that have a price-to-book
(PB) ratio of above 1 and a distribution yield of
below 6%.
The PB ratio is calculated by taking the market
price of a REIT and dividing it by the REIT’s latest
net asset value (also known as book value) per unit.
Any ratio above 1 shows that the REIT is trading
at a premium to its net asset value, which is assets
minus liabilities.
In some cases, a high premium is warranted as
the REIT is perceived to be a stable one. Back to
the examples of First REIT and AIMS AMP Capital
Industrial REIT, the former is selling at a 30%
premium to its book value while the latter is selling at
just 3% above its book value. The market perceives
First REIT to be better than AIMS AMP Capital
Industrial REIT, thus pricing it at a higher valuation.
I also prefer REITs to have a distribution yield of
over 6% in order for them to be commensurate with
the risk taken on to hold them. REITs are generally
riskier instruments due to the high borrowings that
they have to take on, and as mentioned earlier, if
credit freezes up during an economic downturn,
REITs could suffer.

Three Red Flags When Investing in REITs

Jeremy Chia | October 25, 2017
Real estate investment trusts (REITs) have been to take note of the recent headwinds affecting retail
gaining in popularity in Singapore. There are REITs before making a decision.
already over 30 REITs listed in our local market,
and investors have been attracted to them because of Management that has a poor
their relatively high dividend yields.
track record
However, not all REITs are made equal. Some
The strength of the management team of a listed
pose more risk than others, while others have greater
company is very often the key to how well its stock
potential to deliver larger returns. To separate the
price performs over the long-term.
wheat from the chaff, here are three red flags you
should look out for when investing in REITs. Managing a REIT requires a good understanding
of the property market, as well as the foresight
High gearing to acquire the right properties. The presence of a
REIT manager with a poor track record in those
Singapore REITs are subject to regulations
two areas, or that has a shady past, may be a red
that only allow them to have a maximum gearing
flag for investors.
ratio of 45%. As such, there are no REITs that are
leveraged beyond this.
However, investors should still take note of REITs
REITs are a popular investment product for
that are approaching this threshold. REITs that are
investors who are looking for consistent dividend
overly leveraged may face difficulties if and when
payouts. However, investors need to be careful
interest rates rise, and will likely also have less
when investing in REITs. As with any investment,
leeway to expand their property portfolio.
there are risks involved. Hopefully, by staying
Currently, the highest gearing ratio for a REIT in away from REITs that have the red flags mentioned
Singapore is 43.2%, while the lowest ratio stands above, we can reduce the risk of our REIT
at 25.7%. investments going awry.
Poor broad outlook

Investors in Singapore are blessed with having a
multitude of options when it comes to investing in
REITs. For instance, REITs can differ in the location
of their properties, the types of properties they own,
and the size of their portfolio.
Investors, therefore, need to be aware of the
broader outlook regarding a REIT. It is important to
avoid REITs that are heavily exposed to a sector that
is facing severe long-term headwinds.
One such sector is retail. Not only are traditional
retail companies staring at a tough environment
because of the rise of eCommerce, REITs that own
retail properties are also at risk from the eCommerce
threat. Investors who are looking at REITs may wish

Risks When Investing in REITs
Why You Shouldn’t Invest in REITs

Chin Hui Leong | January 30, 2015
I had earlier written an article about why you likely need to issue more units or take on more debt
should invest in REITs. In this article, let’s go to the in order to finance any new acquisitions. The astute
flipside of REITs and talk about the disadvantages of Foolish investor will have to comb through previous
investing in REITs. acquisitions to see if historical acquisitions have
As a brief recap: there are 26 REIT listings on the been accretive.
SGX, in addition to six other stapled securities (a
stapled security typically consists of a business trust
Track record of management
and a REIT). teams
Once again, we can turn to author Bobby The REIT you pick may be as good as the ability
Jayaraman, and his book Building Wealth Through of the management team to generate organic growth
REITs for hints. Here are some of the tips I picked from existing properties, and to execute prudent
up from his book: acquisitions for the future.
There is also the matter of management
Need for debt and refinancing compensation. My colleague Stanley has pointed
The nature of REITs is to retain very little earnings out differences before:
for paying down its loans. This leaves REITs at the
CapitaCommercial Trust has one of the lowest
mercy of capital markets for refinancing that it needs
fees, with only a 0.1% base fee. Most REITs
to do from time to time. The ability and flexibility of
such as Keppel REIT and Ascendas Real Estate
a REIT to consistently do so is one thing to watch.
Investment Trust have a base fee of 0.5% of
Some will do better than others. For instance, the total asset of the REIT.
healthcare property owner Parkway Life REIT
REITs such as Mapletree Greater China
(SGX: C2PU) boasts an all-in interest rate 1.4% and
Commercial Trust and OUE Commercial Real
an interest coverage ratio of 10.1 times. Serviced
Estate Investment TR set its performance
apartment owner Ascott Residence Trust (SGX:
fee to the increase in DPU from year to year,
A68U) on the other hand, has an effective borrowing
motivating the managers to focus on growing
rate of 3.0% and an interest coverage ratio of 4.3
the DPU for its unit-holders.
times. The differences in debt profile may lie in the
underlying business behind the ticker. Ultimately, the private investor will have to judge
the performance of the management team against its
Growth by acquisition with more compensation.
debt or share dilution Foolish summary
At the moment, the level of debt allowed for REITs The points above are to highlight some of the
is capped at 60% of its assets provided that it has a downsides from investing in REITs. Like any
credit rating. Without a credit rating, the debt to asset investment vehicle, there will be advantages and
ratio is capped at 35%. Foolish investors should also disadvantages associated. The points shared should
be aware that the new REIT regulations proposed by not distract us from the overarching importance to
the Monetary Authority of Singapore is a single-tier picking good businesses underlying in the REITs.
cap of 45% – with or without credit rating. It may
serve to limit the debt levels taken by REITs.
However, this also would mean that REITs will

3 Big Risks Investors Must Know About a Real Estate

Investment Trust
Stanley Lim Peir Shenq, CFA | February 1, 2016
The Singapore stock market is home to some of a hike in a REIT’s interest expenses. In turn, the
the largest real estate investment trusts in the region. amount of distributable income that the REIT can
REITs such as Ascendas Real Estate Investment generate might drop significantly, thus negatively
Trust (SGX: A17U), CapitaLand Mall Trust (SGX: impacting the distribution yield of a REIT. When
C38U), Mapletree Logistics Trust (SGX: M44U) this happens, the unit price of a REIT may be
and Mapletree Industrial Trust (SGX: ME8U) all affected as REIT-investors may dispose of it in
have a market capitalisation of over S$2 billion each. search of higher yields.
Land is a very valuable commodity in Singapore
given that it is a tiny island nation. Moreover,
Use of short-term debt
REITs in Singapore tend to offer high yields as well, Generally speaking, the bulk of a REIT’s assets
relative to the broader market. are properties that can last for decades or even
centuries. In other words, a REIT’s assets are
But, REITs are far from being a risk-free
mainly long-term in nature. But, the borrowings of
investment. Investors need to understand how REITs
most REITs are relatively short-term, with typically
are structured in order to gain better awareness of
less than 10 years to maturity.
the risks involved. Here are three big risks that I’m
watching with REITs. As such, this creates a type of asset and liability
mismatch, in the sense that REITs are using short-
Lack of a safety net term liabilities (debt) to finance long-term assets
REITs are required by regulation to distribute 90% (properties). In fact, REITs have a constant need to
of their taxable income each year as distributions to refinance their borrowings while holding onto the
enjoy tax-exemption. That would explain why most same assets.
REITs tend to have high dividend yields. In the event of liquidity drying up, such as during
But, this means that REITs are not able to build up the Global Financial Crisis of 2008-09, a REIT may
a cash reserve to strengthen their balance sheets and be caught in a dangerous position of being unable to
protect themselves against any adverse economic find any refinancing options when its debt comes due.
conditions. The need to distribute most of their income If that happens, the REIT would most likely have to
would also mean that REITs lack the cash reserves to undertake a huge rights issue or private placement –
invest in more properties to grow their distribution. at a deeply discounted unit price to boot.
Therefore, it is common to see REITs issue rights In this scenario, an investor in the REIT may see
or conduct private placements as a way to raise more his or her stake diluted sharply (from a large private
capital from time to time. For an investor, there’s a placement) and/or be required to fork out a large
risk that your investment in a REIT may get diluted sum of money (from a rights issue) to reinvest in
when it conducts such corporate exercises. the REIT and save it from financial difficulties.
Interest rate risk Foolish Summary

REITs can be great investments. But, investors
The aforementioned inability of REITs to conserve
should be aware that a great investment opportunity
cash would also mean that they’d have to depend on
does not mean that it is risk-free. Understanding
debt for financing. REITs with significant debt on
the key risks of REITs would give an investor
their balance sheets may be facing interest rate risk.
an edge when it comes to managing his or her
In the event that interest rates rise, this may cause investment portfolio.

REIT ETFs Listed in Singapore: 5 Quick Points of Comparison

Chin Hui Leong | October 7, 2017
In a space of just twelve months, three exchange For reference, the largest holding in Phillip
traded funds (ETFs) featuring real estate investment APAC SGX REIT ETF is the Hong Kong based
trusts (REITs) would have been listed on the Link REIT (as of the end of July). Meanwhile,
Singapore stock exchange. Ascendas Real Estate Investment Trust (SGX:
The selling points between the three REIT ETFs A17U) tops the allocation list at Nikko AM STC
can sound similar. Asia REIT. Elsewhere, Lion Phillip S-REIT ETF is
set to hold CapitaLand Mall Trust (SGX: C38U)
Nikko AM STC Asia REIT (SGX: CPA) called as its biggest position.
to attention to the booming Asian REIT market
that amounts to about US$100 billion in assets for
2017. Phillip APAC SGX REIT ETF (SGX: BYJ)
highlighted that investors stand to gain a diversified
portfolio of REITs under one umbrella.
Meanwhile, the newest of the trio, Lion-Phillip
S-REIT ETF, pointed out its low fees. The latter is
set to make its debut at the end of October.
But as we lift the veil on the ETFs, some
differences emerge. The table below summarises five
points of comparison.
REIT ETF Lion Phillip S-REIT ETF Phillip APAC SGX REIT ETF Nikko AM STC Asia REIT
Number of REIT 23 30 23
Management fees 0.5% 0.3% 0.5%
Dividend Frequency Semi-annual Semi-annual Quarterly
Biggest Country Allocation Singapore (100%) Australia (53.5%) Singapore (60.5%)
Biggest Sector Allocation Retail (30.15%) Retail (45.4%) Industrial and Office (44.7%)
Source: Curated from information provided by Phillips Capital.

What Investors Should Know About Lion-Phillip S-REIT ETF

Stanley Lim Peir Shenq, CFA | February 1, 2016
Lion-Phillip S-REIT ETF (SGX: CLR) is Real Estate Investment Trust (SGX: A17U),
Singapore’s first exchange-traded fund (ETF) CapitaLand Commercial Trust (SGX: C61U) and
that is dedicated entirely to Singapore real estate Suntec Real Estate Investment Trust (SGX: T82U).
investment trusts (REITs). It debuted on our local CapitaLand Mall Trust had a weight of 10% while
stock exchange in October 2017. As of 31 May 2018, Suntec REIT took up 8.69% of the index.
the REIT ETF’s benchmark index, Morningstar
Other REITs that are part of the index include
Singapore REIT Yield Focus, had a distribution yield
Keppel REIT (SGX: K71U)(4.48% of the index),
of 5.27% and a price-to-book ratio of 1.06.
Parkway Life REIT (SGX: C2PU) (3.51%) and
Lion-Phillip S-REIT ETF tracks the performance Mapletree Logistics Trust (SGX: M44U) (2.35%).
of the Morningstar’s Singapore REIT Yield Focus
The following shows the performance of Lion-
index, as mentioned earlier. The index is one of
Phillip S-REIT ETF as compared to its benchmark
Morningstar’s strategic beta indexes and uses a
index, as of 30 April 2018 (date of latest available
proprietary three-factor rules-based investment
information):
methodology with an emphasis on 1) business
quality; 2) financial health; and 3) dividend yield. Other REIT ETFs listed in Singapore include
Phillip APAC SGX REIT ETF (SGX: BYJ) (SGX:
The ETF portfolio will be rebalanced in June and
BYI) and Nikko AM STC Asia REIT ETF (SGX:
December each year, and the ETF will pay out a
CFA). The former was listed in October 2016, and
distribution semi-annually (in February and August).
the latter went public in March 2017.
ETF investors must keep an eye on the expense
ratio of the ETFs they are invested in. This
ratio considers an ETF’s total annual operating
expenses such as administrative, compliance,
and management fees. The lower the ratio, the
better it is for investors. Lion-Phillip S-REIT ETF
carries an expense ratio of around 0.6% per year.
In comparison, the SPDR STI ETF (SGX: ES3),
which tracks the Straits Times Index (SGX: ^STI),
has an expense ratio of 0.3% per annum.
The top five constituents of the Lion-Phillip S-REIT
ETF’s benchmark index, as at 31 May 2018, were
CapitaLand Mall Trust (SGX: C38U), Mapletree
Commercial Trust (SGX: N2IU), Ascendas
Funds Performance (SGD)
Returns % Year-to-date 1 month 3 months 1 months 1 Year Since Inception
S-REIT ETF2 -1.6 1.8 -3.3 3.7 N.A. 4.1
Benchmark -1.2 1.9 -3.1 4.2 N.A. 4.6

Source: Lion-Phillip S-REIT ETF factsheet

Commonly Used Terms in REITs Investing
REIT Jargon Demystified:

Commonly-Used Terms That REIT Investors Should Know
COE. ECP. ERP. Capitalisation rate (or cap rate)

Most of us living in Singapore are likely to be Capitalisation rate is the net property income of
familiar with the terms above. an asset divided by its property value. It measures
However, what about DPU, NAV, and WALE? the return on investment of a property.
When we invest in real estate investment trusts
(REITs), we are bombarded with a whole lot of
Cost of debt
acronyms that can make our head spin. Here at The This metric shows much interest a REIT has to pay
Motley Fool Singapore, we understand that new per year on its borrowings. It is usually given as the
investors may find it challenging to navigate the ratio of the REIT’s interest expense over its weighted
jargon used in the REIT-world, including DPU, NAV, average borrowings. Some REITs call this metric
and WALE. So, here is a glossary of commonly-used “all-in interest rate.”
REIT-terms, explained simply.
Gearing ratio
AUM: Assets under management Gearing ratio is derived by taking a REIT’s total
AUM shows the value of all the properties and borrowings (both short-term debt and long-term
other assets, such as cash, held by a REIT. debt) and dividing it by its total assets. REITs in
Singapore have a gearing ratio limit of 45% that is
AEI: Asset enhancement initiative set by the Monetary Authority of Singapore.
AEI refers to the revamping of a property to
enhance its value, and hence, its rental income.
Gross revenue
AEIs are commonly carried out by retail REITs to Gross revenue is the income that a REIT earns
constantly refresh their malls to attract shoppers and through rent, operation of car parks, and related
tenants alike. activities.
In an earlier article, I pointed out how Singapore’s
first and largest REIT, CapitaLand Mall Trust
DPU: Distribution per unit
(SGX: C38U), carries out AEIs. Such methods DPU shows how much distribution a REIT
are similar for other REITs as well. Here’s my investor would get for every unit owned. It is similar
explanation on how AEIs can be done: to the dividend per share for companies. The DPU is
calculated by dividing a REIT’s total distribution by
“1) Converting lower-yield space into higher-
the total number of units in existence.
yield space;
2) Reconfiguring retail units to optimise Distribution yield
space efficiency; Distribution yield shows how much a REIT
3) Maximising the use of common areas, and investor receives as DPU for the REIT unit
converting mechanical and electrical areas price paid. It is similar to the dividend yield for
into space to be rented out; and companies, and is a measure of the return on
4) Upgrading amenities, sprucing up the investment for a REIT.
facade, and adding play and rest areas,
among others.”
Income support
Some REIT sponsors provide income support for

properties that are not yet mature but are injected Rental reversion rate
into a REIT. Since the properties might not be able
to command enough rental to provide adequate This metric shows whether new leases that were
rental income for the REIT, the sponsor steps in to signed have higher or lower rental rates than before.
make-up the difference between the actual rent and A positive rental reversion rate means that new
the ideal rental income. leases signed command higher rent than previous
leases. Unfortunately, there is no one unified way to
REITs in Singapore’s market that have resorted to compute the rental reversion rate as different REITs
income support include Keppel REIT (SGX: K71U), have different ways to calculate this rate.
OUE Commercial Real Estate Investment Trust
(SGX: TS0U) and Viva Industrial Trust (SGX: T8B). ROFR: Right-of-first-refusal
Interest cover ROFR is an agreement a REIT usually has with
its sponsor. With the contract, if the sponsor wishes
This ratio shows the ability of a REIT to pay the to sell any of its properties, it has to offer the asset
interest on its borrowings. It is calculated by taking to the REIT first before offering it to a third-party.
the net property income and dividing it by the
interest expense. Rights issue
NAV: Net asset value Just like bank borrowings, rights issue is a
financing method for REITs to raise funds through
NAV is a REIT’s total assets minus its total the sale of new units to existing unitholders. The
liabilities. To go a step further, NAV per unit is the new units are usually given at a discount to the
REIT’s NAV divided by the total number of units in REIT’s market price to entice unitholders to invest.
issue. NAV is also known as book value.
NLA: Net lettable area Tenant retention rate

The tenant retention rate shows the “stickiness”
Generally, the NLA of a property refers to the floor of a REIT’s tenants. The higher the rate, the more
area that can be occupied by a tenant. It excludes willing a REIT’s tenants are to staying at the
common areas such as lift lobbies, toilets, and corridors. REIT’s properties.
NPI: Net property income WALE: Weighted average lease
When we deduct property-related expenses such
as property management fees from a REIT’s gross
to expiry
revenue, we get its NPI. This metric shows the number of years left for
the leases of the REIT’s tenants to expire. WALE is
Occupancy rate measured by taking the remaining lease period of
Occupancy rate is the ratio of a REIT’s rented all tenants, weighted with either their occupied area
space to the total amount of available space. or gross rental income.
Some REITs mention the term “committed Weighted average term to
occupancy rate.” This rate includes tenants who
have committed to the property by signing certain maturity
agreements or paying a rental deposit, but who have This metric reveals the average amount of time,
yet to move into the building. measured in years, until a REIT’s borrowings
become due.
P/B ratio: Price-to-book ratio
The P/B ratio is a valuation metric that is derived Yield-accretive acquisition
by taking the current unit price of a REIT and A yield-accretive acquisition is an investment that
dividing it by its NAV per unit. A P/B ratio of 1 increases a REIT’s DPU.
means that the REIT’s unit price is the same as its
NAV per unit, which is essentially the value of the
REIT’s underlying assets.

Bonus Contents
REIT Investing Made Simple:

A Checklist to Pick Out the Best REITs
New investors may find investing in real estate yields of between 5% and 9%. A yield that is too
investment trusts (REITs) a daunting task since there low could mean that the REIT is not maximising the
are many things to look out for. I certainly did; when income potential of its property, while a yield that’s
I first started investing in REITs, I was clueless. too high may indicate that the REIT is charging
To make life simpler for new REIT investors, exorbitant rent, which is unsustainable.
I have created a checklist to follow, and you can The interest coverage ratio is computed by
find it below (the checklist has two parts — a taking a REIT’s NPI and dividing it by its finance
quantitative aspect and a qualitative side — with 12 costs. Any ratio above 4 is good for me. This shows
questions in all): that even if the NPI of a REIT were to drop, it can
still pay interest on its loans without straining itself.
Quantitative Checklist Gearing ratio is as important as the interest
1. Gross revenue: Is it increasing consistently? coverage ratio. In Singapore, REITs are required to
2. Net property income: Is it increasing have a gearing ratio of below 45%. I like REITs that
consistently? have a gearing ratio of below 35% as this ensures
there is enough room for error before the regulatory
3. Distribution per unit: Is it increasing
cap is breached.
consistently?
4. Property yield: Is it between 5% and 9%? Moving on, the portfolio occupancy rate
shows the ratio of a REIT’s rented space to the
5. Interest cover: Is it more than 4 times? total amount of space available. I like REITs that
6. Gearing ratio: Is it below 35%? have full occupancy, or at least an occupancy rate
7. Portfolio occupancy rate: Is it above the close to 100%. No one likes to walk into an empty
market average at least? shopping mall. If a high occupancy rate is not
possible, I prefer the REIT to have an occupancy
8. Price-to-book ratio: Is it below 1?
rate that is at least above the market-average.
9. Distribution yield: Is it more than 6%?
I analyse the valuation of a REIT by looking
Qualitative Checklist at its price-to-book (PB) ratio and distribution
yield. I prefer REITs to have a PB ratio of below
1. Is the REIT’s sponsor responsible? 1 and a distribution yield of above 6%. I believe a
2. Does the REIT have right-of-first-refusal combination of these numbers give me good value.
(ROFR) on properties? Two main qualitative aspects I look at with a REIT
3. Can the REIT grow with the property sector(s) are the traits of its sponsor, and whether the REIT
it is in? can grow with the property sector(s) it is in.
When I invest in a listed company, I ideally want In my opinion, First Real Estate Investment
to see it making more revenue and net profit every Trust (SGX: AW9U), an owner of healthcare assets
year. Investing in REITs is no different. For REITs, in Asia, has one of the best sponsors amongst
I want to see consistent growth in gross revenue, Singapore-listed REITs. Its sponsor, PT Lippo
net property income (NPI) and distribution per Karawaci Tbk, is Indonesia’s largest listed
unit over the years. property outfit. As of 8 March 2018, the sponsor’s
A REIT’s property yield, in my opinion, is more stake in First REIT was around 28%. This high
critical than its distribution yield. I prefer property insider ownership should align Lippo Karawaci’s

interests with that of First REIT’s unitholders. Lippo
Karawaci also has a strong pipeline of around 40
hospitals to which First REIT has the ROFR on. This
means that the sponsor will offer the hospitals to the
REIT first before any other party.
Other than growing through acquisitions, First
REIT can also develop with the healthcare sector in
Indonesia. In its 2017 annual report, the REIT said:
“With its [Indonesia’s] massive population,
infrastructure development and a burgeoning
middle class, the country’s healthcare market
continues to be marked as a sustainable
growth sector.
It has an underserved healthcare market, with
low hospital bed and doctor ratios relative
to the size of the population. According to
a 2015 Frost & Sullivan Healthcare Outlook
report, the Indonesia healthcare sector is
expected to triple from US$7.0 billion in 2014
to US$21.0 billion in 2019.
With the growing demand for healthcare
services in Indonesia and the ongoing
national health insurance scheme, Jaminan
Kesehatan Nasional (“JKN”), which targets to
cover the entire Indonesia population of 260
million by 2019, First REIT’s portfolio of high-
quality hospitals is well-positioned to serve
the expanding healthcare market.”

The checklist presented above is by no means
exhaustive. It also does not mean that if you follow
the criteria listed strictly, you would not see any
losses in your REIT portfolio. But, the checklist
should at least point investors to the right direction
when investing in REITs.

Bonus Contents
Are REITs Worth Considering When Rates Rise?

David Kuo | April 12, 2018
With interest rates on the way up, an argument can Cash is probably more relevant than earnings,
be made for avoiding Real Estate Investment Trusts which tend to be complicated by accounting rules
or REITs. After all, why choose a distribution that is that require REITs to depreciate their properties.
not certain, when it is possible to get a guaranteed Property values tend to rise over time, rather
return from money in the bank. than fall. But general accounting rules require
Right now, it is possible to earn around 1% on US properties to be depreciated over their lifetime. So,
dollar deposits. And if market estimates are right, the reported profit number could underestimate the
another six interest rate hikes by the end of 2019 “true” profit. REITs also tend to hang on to their
could lift deposit rates to 2.5%. properties for ages.
But that would still be less than the average yields These assets are carefully chosen to generate long-
on Singapore and Malaysian REITs of about 6%, term income. In fact, we should probably run a mile,
even though their pay outs could be risker. Question if a REIT buys and sells its buildings too frequently.
is whether the premium is worth the risk? Consequently, Funds from Operation (FFO)
can be a better gauge of profit. It adjusts for
Non-discretionary income depreciation, amortisation, and any gains or losses
Before we address that question, it is worth from property disposals.
bearing in mind that REITs must pay out 90% of
Currently, the median Price-to-FFO for Singapore
their income to investors, regardless.
and Malaysian REITs is a high, but not-too-
The distribution is not discretionary. If the REIT demanding 17. It means that we are paying around
makes money, then it must pay out most of it to $17 for every dollar of cash generated. Hektar
unitholders, if it wants to enjoy a favourable tax status. (KLSE: 5121.KL) is valued at 14 times Funds from
Secondly, REITs have often been viewed as a Operation, while Frasers Hospitality Trust (SGX:
proxy for bonds. But unlike bond prices, the share ACV) is valued 20 times.
price of REITs doesn’t necessarily fall when interest
rates rise. So, we shouldn’t assume that all REITs Almonds and pistachios
could be adversely affected by rising interest rates. A common problem with comparing different
In fact, a REIT’s performance is influenced by two REITs is that it can be a bit like pitting almonds
factors, namely, the prevailing credit conditions and against pistachios. That’s nuts.
the state of the economy. If either the economy is How do we compare, say, a REIT with prime
doing well, or credit is readily available, then REITs properties in the Central Business District with
should perform well too. another that owns a portfolio of suburban malls?
So, unit holders could continue to receive One useful way is to look at their capitalisation
uninterrupted distributions. But it is important to rates. It is a measure of the annual rental income
choose the right REITs – not just the one with the that REITs generate from their properties.
highest yield. Currently, the median capitalisation rate for Singapore
and Malaysian REITs is around 5.3%. It means that
Misleading valuations they could generate roughly $5.30 of rental income
One way to evaluate REITs is to look at how much from every $100 of property assets. SPH REIT (SGX:
we are paying for every dollar of profit they make. SK6U) sports a cap rate of 5.2%, while AIMS AMP
With shares, the price-to-earnings can be helpful. (SGX: O5RU) has a cap rate of 6%.
But with REITs the P/E ratio can be almost useless.
A high capitalisation rate is not necessarily better. It

could mean that a landlord is charging too much rent,
which might not be sustainable over the long haul.
By the book
Finally, we should never lose sight that REITs are
property assets. So we should consider carefully how
much we are paying for every dollar of their net assets.
One way is to look at their book values. Since the
properties held by REITs are appraised regularly, the
book value should provide a reasonable gauge.
Currently, Singapore and Malaysian REITs are, on
average, trading at around their book values, though
some are trading at quite a hefty premium.
Fortune REIT (SGX: F25U) is valued at about
0.7 times book value, while Keppel DC REIT
(SGX: AJBU) is valued at a 50% premium.
With more than 50 REITs listed on the Singapore
and Malaysian market, investors are spoilt for
choice. That can be both a blessing and a curse.
Choice is never a bad thing. Some REITs can be
quite outstanding, some are mediocre, while some
could disappoint. So, choosing the right ones for our
portfolios is crucial.
Focussing on yields may provide us with
instant gratification. But for long-term investors,
considering the sustainability of distributions can be
more satisfying over the long haul.
A version of this article first appeared in the
Business Times.

Bonus Contents
2 REITs to Buy for Your Parents

Jeremy Chia | July 17, 2018
Managing a portfolio for your parents can be a Although units of Parkway Life REIT do not
tricky task. Lose money, and you will never hear the come cheap and have a distribution yield of just
end of it. Just imagine the backlash and nagging you 5%, investors can be pretty sure that distributions
will get. Therefore, it is essential that you choose are most likely going to grow over time.
stocks that can achieve decent returns with very CapitaLand Retail China Trust (SGX:AU8U),
limited downside risk. as its name suggests, invests primarily in shopping
With that in mind, I have found two real estate malls in China. It currently has a portfolio of 11
investment trusts (REITs) that could be the perfect shopping malls located in major cities in China.
fit for parents. Not only do those REITs have The trust also has an outstanding track record of
impressive track records, the stable distributions maintaining and growing its distributions even in
and propensity for growth provide both stability and harsh economic conditions.
upside potential. In the most recent quarter, the REIT managed to
The first REIT is Parkway Life REIT (SGX:C2PU). increase its distribution per unit by 0.4% and reported
It is perhaps the most stable and consistent REIT in the strong positive rental reversions of 12.8%. With
stock market. Its portfolio consists of 50 healthcare- another 28.1% of leases due for expiry this year, the
related properties that includes three in Singapore REIT can capitalise on the strong uptick in demand to
(Mount Elizabeth, Gleneagles and Parkway East), grow its rental income in its existing portfolio.
46 properties in Japan and Gleneagles Intan Medical On top of that, the REIT has a gearing ratio
Centre in Kuala Lumpur. of just 32.5%, much lower than Parkway Life
The REIT has a commendable record of growing REIT even. This gives CapitaLand Retail China
its distribution per unit (DPU). In the last five years, Trust the financial muscle to make yield-accretive
it has grown its DPU at a compounded rate of 3% acquisitions to grow its portfolio in the future.
per annum. At the time of writing, units of CapitaRetail China
It also has a very well managed debt profile, with Trust exchanged hands at S$1.49 per piece. That
a 38% gearing ratio (a measure of debt) and interest translates to an 8% discount to its book value and a
cover (how easily it can pay off its interest expense) handsome distribution yield of 6.56%.
of 13.2 times. The interest cover is one of the
highest among REITs in Singapore. This provides
the REIT with financial capacity for acquisition
growth in the future.
Furthermore, the rental income from its properties is
also very stable. Its properties in Japan have a weighted
average lease expiry of 13 years, with built-in rental
escalations tied to the consumer price index. This
provides visible organic rental income growth.
Its tenant in the Singapore hospitals is IHH
Healthcare Bhd (SGX:Q0F), the largest listed
healthcare operator in Singapore. IHH has a stable
income and strong financials, which means that the
company can most likely pay its rent and renew its
contract when the lease expires.

Bonus Contents
2 REITs That Have Increased Their Distribution Per Unit for

Five Consecutive Years
Jeremy Chia | July 6, 2018
The historical track record of a REIT speaks volumes REIT. Its portfolio includes three prominent
about it. If a REIT has been able to consistently deliver private hospitals in Singapore (Mount Elizabeth,
growth over a reasonable period, it indicates that the Gleneagles and Parkway East), 46 healthcare-
management is making good acquisition decisions or related properties in Japan and Gleneagles Intan
that the REIT’s property portfolio is able to attract and Medical Centre in Kuala Lumpur.
retain tenants at increasingly higher rents. Parkway Life REIT has a commendable record
These are both strong indicators that a REIT can of growing its distribution per unit. Between 2013
continue to deliver strong growth in the future as and 2017, the trust has grown its distribution per
well. With that in mind, here are two REITs that unit (excluding one-off gains) from 10.75 Singapore
have shown a five-year track record of growing their cents to 12.46 Singapore cents. That translates to
distribution per unit. a compounded annual growth of 3% per year. The
First Real Estate Investment Trust (SGX: table below shows the distribution per unit over the
AW9U) is Singapore-listed REIT that invests mostly last five years, excluding any one-off distributions.
in healthcare-related investment properties. It has 2017 2016 2015 2014 2013
a portfolio of 20 properties which includes 16 Parkway Life 12.46 12.12 11.79 11.52 10.75
properties in Indonesia, three in Singapore and one
in South Korea. Source: Parkway Life REIT annual reports
Over the last five years, First REIT has managed As is with First REIT, Parkway Life REIT has
to grow its distribution per unit at a compounded long lease contracts and built-in rental escalations
rate of 2.8% per annum from 7.5 Singapore cents in with its tenants. Its three properties in Singapore are
2013 to 8.6 Singapore cents in 2017. leased to IHH Healthcare Bhd (SGX: Q0F), one
of the largest hospital operators in Asia. The leases
2017 2016 2015 2014 2013 are triple net, which means that Parkway Life REIT
First REIT 8.6 8.47 8.3 8.05 7.5 does not bear the cost of property tax, property
Source: First REIT annual reports insurance or property operating expenses. On top
of that, there is built in rental-escalations linked
The properties in Indonesia are master-leased to to the consumer price index of Singapore, with a
hospital operators and have 15-year terms. These minimum rent increase of 1% per year.
leases also include a built-in rental escalation,
which guarantees that the REIT collects more rental Its properties in Japan have a weighted lease term
income each year. The closest renewal only comes to expiry of around 13 years, with the majority
in 2021 and the management team is confident that it of the properties having “up-only” rent review
will be able to renew the lease with its master tenant. every few years. These favourable tenant contracts
provide the REIT with visible organic rental income
As such, investors can be confident that distribution growth over the foreseeable future. This will, in
per unit will be maintained and likely grow in the turn, ensure that unitholders will likely be able to
future, given the very visible organic rental income receive increasing distributions each year.
growth and long-term lease contracts. At the time
of writing, units of First REIT exchanged hands at Units of Parkway Life REIT, however, do not
S$1.34 per unit. This translates to a price-to-book ratio come cheap. At the time of writing, it traded at
of 1.22 and a distribution yield of 6.45%. S$2.65 per piece. This translates to a 50% premium
over its book value and a distribution yield of
Parkway Life REIT (SGX:C2PU), with its 5.05%, which is one of the lowest yields among
portfolio of 50 properties valued at approximately Singapore REITs.
S$1.75 billion, is Asia’s largest listed healthcare

Bonus Contents
3 Ways REITs Can Grow Their Distributions

Jeremy Chia | March 15, 2018
As a REIT investor, I look out for REITs that can REITs can also bring in new tenants that can pay
grow their distributions per unit (DPU) sustainably. higher rents as compared to the previous tenants.
Such growth is excellent for long-term income
investors who can then reap the benefits from a The Foolish takeaway
bigger yield. As REIT investors, looking out for REITs that
As such, I thought I would highlight three ways that employ these three strategies may be a good place
REITs can improve their DPU, increasing unitholder to start. However, besides these growth strategies,
value in the process. there are other aspects of a REIT to consider, like
its debt profile, property portfolio and reliability
Step-up rental contracts
of management. We should inspect each of these
REITs can increase their rental income by signing elements before making a holistic investment decision.
step-up lease agreements with tenants. These contracts
stipulate that the rental rate will increase at pre-
determined points in the future.
Step-up contracts are usually seen in commercial
or industrial properties. This type of lease gives the
REIT an opportunity for increased rental income in the
future, without having to renegotiate a new contract
with the tenant.
Increasing their gross floor area

REIT managers can also enhance the property yield
by increasing the property’s gross floor area (GFA),
thereby increasing the net lettable area. REIT managers
achieve this by upgrading their assets through asset
enhancement initiatives (AEI).
By increasing the net lettable area, REITs can
increase the income generated by their assets.
Converting low yield space into

higher yield space
Finally, a REIT can grow its rental income
organically is by increasing the yield on its current
lettable area. This can be done by improving their
properties through AEI or by changing the tenant mix.
REITs can add value to tenants by enhancing their
property through renovations and upgrading of their
facility. Retail REITs, for instance, constantly upgrade
their property to attract shoppers to their malls. This
has the effect of increasing the value of their shopping
space to their tenants and consequently, raise the rental
rates for the REIT.

Bonus Contents
2 REITs That Give Exposure to The Fast-Growing China

Property Market
Jeremy Chia | June 8, 2018
It is no secret that property prices in China have REITs listed in Singapore at just 28.9%. The low
exploded over the past decade. High economic growth gearing gives the REIT additional debt headroom
and rising middle-income population have been to fund more yield-accretive acquisitions in the
catalysts to the double-digit annual growth in property future. Moreover, the REIT has signed built-in rental
prices in most cities in China. escalation contracts with its tenants, which should
Moreover, analysts continue to believe that prices provide visible organic income growth in the future.
will continue to rise despite new government cooling Currently, units of EC World REIT trade at S$0.72
measures in place. One of the reasons they point to is per unit. This equates to a price-to-book ratio of just
that property prices in major cities in China are still 0.77 and an attractive distribution yield of 8.2%.
well below their global peers. The average price in
London is 2.5 times that of Beijing, while Singapore
property prices are three times that of Shanghai. Also,
the population of major cities continues to grow, which
will further fuel demand.
With that in mind, here are two Singapore-listed
REITs that can give investors exposure to the fast-
growing China real estate market.
CapitaLand Retail China Trust (SGX: AU8U)
invests primarily in shopping malls located in China. It
has a portfolio of 11 shopping malls located in different
cities across the nation, including malls in Beijing,
Guangzhou and Shanghai.
As at 31 March 2018, the trust had a gearing ratio
of 32.5%, well below the regulatory cap of 45%. It
has also managed to increase its distribution per unit
over the most recent quarter by 0.4% and reported
strong positive rental reversion of 12.8%, which
bodes well for future rental income. Despite the
challenges posed by e-commerce, the REIT continues
to see increasing shopper traffic and steady growth in
monthly tenant sales.
As at the time of writing, units of CapitaLand Retail
China Trust exchanged hands at $1.55 per unit. That
translates to a price-to-book ratio of 0.94 and an
annualised distribution yield of 7.1%.
EC World Real Estate Investment Trust (SGX:
BWCU) has a portfolio of six properties located
in Hangzhou and one in Wuhan City. The REIT
specialises in investing in port logistics, specialised
logistics and e-commerce logistics real estate.
The REIT has a high net property income yield of
6.4% and has one of the lowest gearing ratios among

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BROUGHT TO YOU BY THE MOTLEY FOOL SINGAPORE

The Motley Fool Singapore’s

Visit us online at www.Fool.sg

2 The Motley Fool Special Report fool.sg

What Are REITs?

fool.sg Special Report The Motley Fool 3

Dear fellow investors,

The Motley Fool Singapore

4 The Motley Fool Special Report fool.sg

5 Facts About Singapore-Listed REITs

2) There are a total of 44 REITs

3) There are 3 REIT ETFs in

4) REITs have outperformed the

fool.sg Special Report The Motley Fool 5

5 Largest REITs in the Singapore Stock Market

6 The Motley Fool Special Report fool.sg

Do You Know the Difference Between REITs, Property Trusts,

The lowdown on REITs The Foolish bottom line

The lowdown on property trusts

fool.sg Special Report The Motley Fool 7

The Pros and Cons of Investing in REITs

8 The Motley Fool Special Report fool.sg

8 Differences Between Investing in REITs and Physical Properties

fool.sg Special Report The Motley Fool 9

10 The Motley Fool Special Report fool.sg

Why I Invest in REITs Over Treasuries and Corporate Bonds

fool.sg Special Report The Motley Fool 11

New REIT Regulations: What Investors Need to Know

12 The Motley Fool Special Report fool.sg

fool.sg Special Report The Motley Fool 13

What Investors Should Know About a Typical REIT Structure

Real estate investment trusts (REITs) offer an Trustee

14 The Motley Fool Special Report fool.sg

Sponsor (not present in all REITs)

The Foolish takeaway

fool.sg Special Report The Motley Fool 15

8 Different Types of REITs and Stapled Trusts Listed in Singapore

There are around 40 real estate investment trusts Industrial

16 The Motley Fool Special Report fool.sg

Others: Specialized, Diversified

fool.sg Special Report The Motley Fool 17

How to Choose the Best REITs to Invest In?

When it comes to investing in real estate

18 The Motley Fool Special Report fool.sg

Other metrics to look at

fool.sg Special Report The Motley Fool 19

Valuing REITs: A Quick Primer

20 The Motley Fool Special Report fool.sg

3 Factors to Consider When Investing in REITs

Price-to-book ratio below one

A strong management team

fool.sg Special Report The Motley Fool 21

How to Identify REITs That Have a Portfolio That Can Appreciate

A REIT with a portfolio of properties that can Assets located in high-growth

22 The Motley Fool Special Report fool.sg

How to Sieve out the Best REITs from the Rest?

fool.sg Special Report The Motley Fool 23

3 Factors to Consider When Analysing a REIT

Weighted average lease expiry

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4 Types of REITs to Avoid

fool.sg Special Report The Motley Fool 25

26 The Motley Fool Special Report fool.sg