What are REITs?



REITs 

Real Estate Investment Trust (REITs) are a trust that pools money from investors to acquire income generating real estate. REITs will then pay back investors with dividends (AKA money) at regular intervals. They generate income by renting out the properties to tenants and through the appreciation of the properties they acquire. The dividend yield for Singapore REITs are usually high as they are required to pay out at least 90% of their taxable income to shareholders in the same financial year to enjoy a unique tax transparency status. REITs are a popular asset class in Singapore due to its reputation of being a stable blue-chip stock that provide investors with both dividends and capital growth. (Who doesn't like passive income?) REITs can be classified by the type of properties they invest in. There are mainly 6 types of REITs in Singapore:

1. Commercial

Commercial REITs invest in high quality office buildings and rent out to companies. For example, CapitaLand Commercial Trust is one of the largest commercial REITs in Singapore and they have many office buildings that they rent out. Their tenants include companies such as Mizuho Bank, Allianz Technology SE, JP Morgan Chase Bank and GIC Private Limited. Commercial REITs are considered relatively safe REITs that have a high tenant occupancy rate and stable dividend payouts.

2. Retail

Retail REITs invest in shopping malls and have a diverse tenant portfolio. For example, Frasers Centrepoint Trust own shopping malls such as Causeway Point, Changi City Point and Anchorpoint. Retail REITs are more vulnerable to changes in the economy (During recession, less shoppers and traffic at malls) compared to other REITs. For instance, due to the coronavirus pandemic, retail REITs were hit hard and their revenues decreased as more people stayed at home and did not go to the malls. 

3. Industrial 

Industrial REITs invest in industrial properties such as data centres, warehouses and industrial parks. For example, Mapletree Industrial Trust portfolio has 87 industrial properties (Factories, Business Park buildings, Hi-Tech buildings) in Singapore and 27 data centres in North America. Industrial REITs are the up and coming REITs in Singapore due to the emergence of e-commerce and booming online delivery scene. Furthermore, industrial REITs has shown be resilient and least impacted in economic downturns or sudden changes in the economy such as the current coronavirus pandemic. 

4. Hospitality

Hospitality REITs invest in properties such as hotels and serviced apartments. For example, Frasers Hospitality Trust portfolio has 15 hotels and service apartments across 9 cities. Hospitality REITs are relatively volatile as their performance is strongly dependent on the economy. If there is an economic crisis, less people would be able to afford travelling and staying in hotels. Thus, hospitality REITs profit is heavily linked to the economic outlook. This is evident by how hospitality REITs are currently hard-hit by the coronavirus pandemic. On the other hand, if the economy outlook is good, hospitality REITs have one of the highest dividend payouts compared to the other REITs.

5. Healthcare

Healthcare REITs invest in health-related properties such as Hospitals, nursing homes and medical centres. For example, Parkway Life REIT portfolio consists of Gleneagles Hospital, Parkway East Hospital and Mount Elizabeth Hospital. Healthcare REITs are an interesting category that have a lot of potential to grow due to the increasing elderly population worldwide. The demand for hospitals and nursing homes is only bound to increase in the future. Moreover, Healthcare REITs has been shown to be a silver lining in healthcare crisis such as the current coronavirus pandemic which caused its share price to increase. 

6. Residential

The last and least popular type of Singapore REITs is residential REITs which invests in residential properties such as rental apartments. There are currently no residential REITs in Singapore. Ascott Residence Trust has some residential properties in its portfolio but it main focus is on hotels.

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