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SREITS – The Place for refuge in the aftermath of BREXIT?

By Gabriel Yap

SREITS – The Place for refuge in the aftermath of BREXIT?

Regular readers of this column would have known that I have been a key advocator of SREITS in one’s retirement portfolio for the longest time.  In practically all my media programs and interviews, I have also touted SREITS as having been able to deliver steady DPU payouts while savvy trading here and there would be able to reap you 15 – 20% per year (as I have in the past decade).

In the aftermath of BREXIT, SREITS showed its other strengths – it has become a place of refuge for investors seeking safe, stable returns which yield 400 – 450 bp above the SIBOR, a very attractive rate indeed considering that the Singapore 10-year bond yield slipped below 1.7%.

When the outcome of BREXIT was made known on Friday 23rd Jun, the SREITS ended June with a bang -


31/05/2016 30/06/2016 Change Change
Fortune Reit $8.590 $9.200 $0.610 7.101%
Mapletree Industrial Trust $1.610 $1.720 $0.110 6.832%
Frasers Logistics Trust $0.890 $0.950 $0.060 6.742%
Suntec Reit $1.665 $1.770 $0.105 6.306%
Capital Commercial Trust $1.390 $1.475 $0.085 6.115%
Capital Mall Trust $2.030 $2.130 $0.100 4.926%
Frasers Centrepoint Trust $2.020 $2.130 $0.110 5.446%
Mapletree Commercial Trust $1.430 $1.480 $0.050 3.497%

Based on rebound from the month-low, 4 of the Top-8 performing SREITS are operating in the retail sector – Fortune, Capital Mall Trust, Frasers Centrepoint Trust and Mapletree Commercial Trust.  So while BREXIT has caused havoc, retail REITS have continued to exert its resilience as a good place of refuge.  Malls are certainly another refuge as we enter the hot summer months with different experiencial entertainment while keeping you cool.

Newly-listed Frasers Logistics Trust also rode on the wave as it gained a handsome 6.742% over its IPO price of $0.89.  However, this has shaved its guided DPU yield down to only 6.379% (compared to its IPO yield of 6.8%) for FY2016.  Perhaps a smart investor should be looking for better bargains in SPH Reit, though not a new IPO, but definitely one of the rare retail REITS that have underperformed. 

SPH REIT share price eased 1 cent in June to end at 93 cents, down 3.63% for 2Q2016.  Other than Starhill Global Reit, it is the only REIT that trades at a discount to its NAV of 94 cents.  It yielded a handsome 6.022% which is barely  35 bp lower than Frasers Logistics Trust considering that their assets are retail and in Singapore.  The latter owns 51 industrial properties in Australia (thereby exposing investors to the volatile A$ and foreign exchange risk unless all the income are hedged).

Notably, office REITS did well too with both Suntec Reit and Capital Commercial Trust posting monthly gains of 6.306% and 6.115% respectively.  This came on the heels of the sale of Asia Square 1 to Qatar Investment Agency at $3.4 billion or $2,720 psf  (on a lease expiry of 90 years).

However, it was topped by the sale of Straits Trading Building at an eye-potting $3,520 psf (admittedly on a longer lease expiry of 809 – 846 years) based on the sale price of $560 million.

Both sales prices have defied many property analysts gloomy forecast for the office sector.

In fact, the entire real estate sector, barring a few exceptions, is going through a rough patch. In these circumstances, the smart investor may ask if it is best to stay away from investing in physical property till the market bottoms out?

Or investors may want to consider putting their money in Real Estate Investment Trusts (REITs) instead?

With a little careful planning and research, it is possible to make a tidy profit from the lucrative business of property ownership without carrying some of its attendant risks.

A REIT is essentially a trust formed with the specific purpose of raising capital to purchase real estate assets. The rental income from these properties are then distributed to unitholders, with a minimum payout of 90% to ensure taxation benefits.

SREITs are also closely regulated and monitored by the Monetary Authority of Singapore (MAS).
One of the most important rules that an SREIT follows is that it has to distribute 90% of its taxable income to unitholders. In addition to this, unitholders are entitled to the capital appreciation in the properties that have been purchased by the REITs.

But not every S-REIT has turned out good results. A quick glance at SGX data will make that very apparent.

Industrial player, Sabana REIT and Ascendas Hospitality Trust have earned the dubious honours as the worst performing SREITS for 2Q2016 with their REIT prices down a woeful 15.87% and 10% respectively. 

The mis-steps of both REITS have clearly being reflected in their underperformances and I would be sharing these experiences in my upcoming talk at INVEST FAIR 2016 on Sunday 31st July 1.30 pm CENTRE STAGE.  Be there or be square.

Gabriel Yap
Gabriel Yap

Mr Gabriel Yap,CFA was an eminent stockbroker who retired from stockbroking in 2009 to devote himself to philanthropy to help the needy, poor and handicap globally. He has donated and assisted Charities Aid Foundation, Australia (CAF), a not-for-profit donor funds management business.  

Mr Yap is also Executive Chairman of GCP Global Pte Ltd, an investment firm that invest in both direct capital markets, bonds, real estate, commodities, foreign exchange and builds businesses. Mr Yap appears regularly for the TV media like Channel News Asia and Bloomberg and radio channels like FM93.8 for their various investment programs.

Previously Mr Yap has also lectured at renowned government institutions like the SEASEN Course for the Monetary Authority of Singapore and at AsianDevelopment Bank. Mr Yap has also lectured at financial institutions like the Stock Exchange of SingaporeInstitute of Banking and Finance, the Institute of Certified Public Accountants, the Singapore Institute of Management and the Securities Investors Association of Singapore.

In 2010, the venerable Reader's Digest magazine created the Money Savvy column in their magazine, helmed by Mr Yap who writes on all things finance and answers questions from the magazine's subscribers.

Mr Yap presently splits his time between Melbourne, Europe and Singapore.