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Understanding Singapore REITs Part One – REIT Categories (Continued)

11.01.2011 · Posted in Dividend Stocks, Singapore

Continuing from the previous post Understanding Singapore REITs Part One – REIT Categories, we will explore Office REITs, Retail / Office Hybrid REITs, Hospitality REITs and Residential REITs.


Office REITS – Low-Medium Defensiveness / Medium-High Dividend Yields / Medium WALE

Frasers Commercial Trust, CapitaCommercial Trust, Keppel REIT

Office REITs are generally one of the least defensive REITs you can invest in the Singapore stock exchange. Office assets typically suffer from oversupply in Singapore.  Suitable office locations are mushrooming all around Singapore and many companies these days may not see the need to be located in the city. Even Grade A offices may lose substantial tenants as many companies choose to cut costs when the rental gets too expensive in the city center. Another factor is that many of the tenants in the city are European/American financial companies which are bearing the brunt of this 2008-2011 financial crisis, hence downsizing is possible. In the 2008/2009 financial crisis, office rental yields dropped substantially, affecting distributions dramatically.


Retail / Office Hybrid REITS – Medium-High Defensiveness / Medium-High Dividend Yields / Medium WALE

Mapletree Commercial Trust, Starhill REIT, Suntec REIT

As the name suggests, these REITs are typically integrated developments which have both offices and maybe residential on top of the shopping mall like Vivocity, Suntec etc. Depending on how much of the rental is derived from the office versus the shopping mall, the defensiveness and yields lie in between that of offices and retails. Mapletree Commercial Trust has Vivocity as the key asset, Starhill has Takashimaya and Wisma Atria and Suntec REIT has Suntec Convention Center and Shopping Mall. Hybrid REITs are good to own especially if you have limited capital as the REIT itself already benefits from being diversified with Retail/Office/Residential assets; get defensive qualities of the retail and still enjoy large upside on office rentals when the economy booms.
Hospitality REITS – Low Defensiveness / High Dividend Yields / Low WALE

Ascott REIT, CDL Hospitality Trust

Hospitality REITs are typically made up of hotels and serviced residences. These REITs are probably the most cyclical of all the REITs as hotel occupancy rates are based on tourist arrivals. Ascott REIT has a large percentage of the portfolio worldwide and is thus more subject to the global economy. CDL Hospitality Trust on the other hand is more focused on Singapore hotels. Given the huge boost in tourist arrivals from the two Casinos, first F1 night race in the world and many other initiatives, tourist arrivals to Singapore look poised to continue booming. However, a global downturn may dampen tourism as well. For CDL Hospitality in particular, it does not make sense to look at WALE, but at average occupancy rates and average room rates as key metrics instead. Both are key beneficiaries if global tourism industry is to improve.


Residential REITS – Low-Medium Defensiveness / Low-High Dividend Yields / Short WALE

Saizen REIT (Japan Only)

Saizen REIT is the only pure play residential REIT listed on the Singapore exchange. My experience with Singapore rental properties that lease expiry profiles are low, with many tenants leaving after 1 year contract is up. With the high tenant turnover in residential properties in Singapore, I hardly think they make good investments for REITs, hence Saizen REIT only invests in Japanese residential properties. While I am not familiar with Japanese properties, what I hear is that many Japanese do not have the means to buy houses and hence may rent a house for most of their lives, unlike Singaporeans who can buy affordable HDBs. However, Saizen has defaulted on a loan before, incurring extremely high default costs. You should study the REIT very carefully if you are interested, I am not invested and I don’t intend to.


So in summary, ranking by various qualities

Defensiveness (From Highest to Lowest) – Healthcare, Retail, Retail/Office Hybrid, Industrial, Office, Residential, Hospitality

Dividend Yields (From Highest to Lowest) – Hospitality, Residential, Office, Industrial, Retail/Office Hybrid, Retail, Healthcare

– You can see dividend yield is pretty much inversely correlated to defensiveness.

Weighted Average Lease Expiry (WALE) (From Highest to Lowest) –  Healthcare, Industrial, Retail, Retail/Office Hybrid, Office, Residential, Hospitality


However, the guide is just general as REITs may have different risk levels due to other factors like huge sponsor, access to capital, debt rating, leverage ratio, quality of management, location of properties and so on. Further analysis is required to understand the REITs before investing. As you can see different categories of REITs offer different qualities you may be interested in. A good portfolio should always be diversified with different kinds of REITs. Now that you understand the categories better, you can tweak your portfolio percentages based on your risk profile. For example, if you are more risk adverse, you may want to have a higher percentage of your portfolio in healthcare and retail. If you are willing to take more risks, you may want to have a higher percentage of your portfolio in industrial, office and hospitality.

That’s all for Part 1 of Understanding Singapore REITs! In the next part, I will discuss about analyzing the REITs such as Net Asset Value (NAV), leverage ratio etc.


For further reading, you may be interested in:

Understanding Singapore REITs Part One – REIT Categories

My Singapore Stock Portfolio August 2011

How to Pick A Top Portfolio Company for Dividend Income Part One

Why Your Portfolio Should Only Consist of Dividend Stocks

39 Responses to “Understanding Singapore REITs Part One – REIT Categories (Continued)”

  1. hi calvin…thks for the post. how’s the tax bracket on the s reits?..

  2. Nice one, found the classification on defensiveness/DIV/WALE useful. A review on Malaysia REIT soon perhaps?

    • Hi LCF,

      Thanks! Yes, I will be doing a similar understanding Malaysian REITs as well.
      Stay posted!

      Also noticed you have a nice blog yourself, keep it up!

  3. Hey Calvin,

    Your write up on S-REITs is very good and informative, I’m thinking of choosing a few S-REITs at this point in time when the market is unstable, for more defensiveness as you have mentioned.

    However do you think the real estate bubble in Singapore will burst soon (1+ years time)? If this happens, how will it affect our investment in S-REITs? Should we still hold on to it for dividends?

    • Hi CS,

      Thanks for the comments. The Singapore real estate prices are definitely high at the moment, however I can’t exactly call it a bubble. The prices are high due to several factors including lack of supply, high demand due to growing population, rental demand from foreigners and of course the very low interest rates. All the factors point to unsustainable price increases, but whether the prices will come crashing down is anybody’s guess. Honestly, I can’t say what will happen, I just feel that valuations are rather high at this point, but it may just stay stagnant for a few years.

      With regards to the S-REITs, should an economy go into downturn, the first to get affected will be office rentals and some industrial rentals. As I stated, office REITs are least defensive of all. If rental drops, DPU will surely drop, just look back at 2008/2009 when Keppel REIT DPU dropped dramatically. I.e. a 7% dividend yield could drop to as low as 4-5% dividend yield based on your purchase price, you have to be able to live with that. Otherwise if you sell then, you will be locking in a loss. Even retail REITs DPU may drop slightly, but you have to be able to hold throughout the periods as they will recover eventually.

      Secondly, the property prices will fall in a downturn, so asset values within the REIT will fall and leverage ratio will increase. If the asset value devaluation is dramatic enough, leverage ratios may become too high and the REIT will issue rights at deeply discounted levels to shore up equity. When that happens, you better have the cash to subscribe to all the rights or you will get diluted at a cheap price. Then again, this time round leverage ratios overall are healthy at around 40% or less, so it would take a huge drop in asset prices for this scenario to take place.

      As I stated, there are many categories of REITs, my opinion at this time is to stay in defensive REITs such as healthcare, retail and some of the bigger industrials. Defensive REITs will have less chances of either of the above scenarios happening to them.

  4. Happy 2012 ! Wish you all the best, and realising all your plans for 2012.

    Can you share your thoughts on Cityspring Infrastucture Trust, its dividend yield track records? Thanks in advance.

    • Thanks Sim.

      Dividend yield for First REIT is about 7.8%.

      With regards to Cityspring, I think people who have bought Cityspring much earlier would still be pretty disappointed with the performance. It overpaid for the acquisition of Basslink and overleveraged, having to issue rights multiple times, causing a huge dilution to shareholders. It still has a very high leverage of close to 70%, much higher than any other trusts or REITs. Even Citygas, the main business has a problem with fluctuating fuel costs as the tariffs can only be changed every 3 months and it is regulated by the government. Overall, I don’t really like the business fundamentals of Cityspring, I much prefer K-Green which has 0 leverage at the moment and have businesses which are in my opinion more defensive than Cityspring as the government is the main customer as opposed to Cityspring where consumers are the end customer.

      • Thanks again Calvin. I have been investing in only M Reits since 2009. After tumbling across your blog and read thru the S Reit and other sites, have since switched & bought more S Reits, as a way to pick up yields & also diversification. From my queries, you may sense that I have been asking you abt high yields S Reits which I did to switch some M to S Reits. Really good work you are putting in this blog! Hope many more investors will read & learn from you.
        P/e: If I have read this blog 5 years ago ( which you haven’t started anyway ), I would have been a happier man because I would have invested all my fund into high dividend stocks + Reits, which have performed superbly during the last 3 years…

        • Hi Sim, well, it’s never too late to start! I seek a total approach in my investments, be it stocks, properties, bonds etc. It just so happens that many of the S REITs are currently quite undervalued. Asset values move in cycles and they usually move independently of each other, so it’s important to identify when the good assets are cheap in value and buy them cheap. As the value propositions change, you may see me buying other stocks or bonds or even properties! Anyway, thanks for reading and supporting!

          • Agreed. REITs form 40% of my investable portfolio to generate passive income as I have stopped having job since 2000. And I allocate abt 30% in FDs & Principal Guaranteed Structured Products as my “safety nests” and “reserve capital” in case there is big crash like 1998 & 2008… The balance 30% is in “speculative” stocks, aiming for big gains ( currently in big loss positions, sigh )…
            Anyway, your thought on Malaysia’s Green Packet’s future performances?

          • Hi Sim,

            So I guess you are retired? If you are retired, I would not recommend having too large a portion of your portfolio in REITs as they are notoriously known for cash calls and without an active income, you may find it difficult to raise the money required for subscribing to the rights. I would conserve some cash in case of rights issues. While it is not compulsory to participate in the rights issues, you may find that sometimes the rights can be at very attractive prices or you may have to do it so that your current shareholdings do not get diluted by cheap issues.

            In the case of FDs, I assume that you are using rolling FDs, i.e. FDs in staggered stages so there will always be a certain sum expiring every month. FDs in Singapore are however very low currently, I recommend investing in SGS bonds or Singapore corporate retail bonds for higher returns for your “defensive guaranteed” part of your portfolio.

            Personally, I do not have any positions in ‘speculative stocks’. I don’t think you should have any either, given that you do not have any more active income. I do have a section of investments for ‘growth’ blue chip stocks like Keppel Corp and Semb Corp.

            Honestly, I think P1 is not doing very well in Malaysia. I tried it once and I couldn’t even get reception from a 7 storey condo. New high speed fiber optic broadband such as Unifi and is killing all internet connections. The new 4G network will see intense competition from Digi, Maxis, Celcom, YTL etc. which have the benefits of other larger business operations to support while P1 only has mobile internet operations.

  5. Hi Again, what is the current Dividend Yield for First Reit?

  6. Hi Calvin,

    I am Malaysian & still very young (47).Since I stopped working, I have been reading books on retirement planning & investment. One thing I learn is to build a diversified portfolios. I am not worried about the right issues because I have the FDs to cover that, or I can sell some other REITs( or the REIT itself if I don’t like the cash call.) FD’s rate in Malaysia is around 3-4% depends on tenure. My passive income from REITs, stocks dividends & FD interests is 2 times my expenses, so I think I should be well cushioned for some shocks. Thanks for your input on P1, that’s what I thought too but I bought it 2 years ago when things looked more rosy then. A big mistake indeed.

    • Hi Sim,

      That’s great, I think many people would aspire to be financially free like you at such a young age. So are you staying in Singapore or Malaysia?

      Yes, the diversified portfolio is the best allocation regardless of the times. Rebalancing a portfolio from time to time will also help you to take advantage of strengths in some assets and weakness in other assets.

      I usually don’t like tech stocks as the industry is unpredictable and shifts too quickly. The only tech stocks I would have invested in are blue chip consumer stocks like Microsoft and IBM.

      Since you are already quite well diversified in stocks and fds, ever considered property investment?

      • Hi Calvin,

        I live in PJ, Selangor.I worked in Singapore from 95-97, came back to Malaysia in Jan 98. I do have 3 apartment /condos in Penang, but more for my parents/brothers & sister’s free staying. Recently just bought a 3 storey Terrace at USJ 1 Park, Subang on loan. Present home bought cash. Thus not highly geared.Think market at the peak of current cycle. Never been a property guy. Have always in stocks till 2009, switching from FDs ( sold 70% of stocks in 2007 before 2008 crisis, lucky me ) into REITs when yields were above 10% for M-Reits, daren’t buy S-Reits then cause yields were over 20% for some,thought they were going down, not familiar yet with Reits then… For me, properties are more for preservation of capital even though I will still gain over the longrun. Nowadays, I am more “fixed income” guy, looking to lock in good yield assets, but keep some fund to punt for some big gains, sort of still having fun while managing my fund.
        You are doing great with your investment strategies & portfolios. Appreciate your sharing of knowledge & info.

        How’s your CFP going? I did my CFA in 93-95. Thought you may also be interested because you are in the investment banking line?

        • Hi Sim,

          I do like stocks and REITs for the liquidity and minimal work required for the dividends. Property investments contributed the bulk of my capital appreciation, but there is definitely a lot more work involved managing property and tenants. I am also currently looking at bonds, but may wait for the interest rates to go up first before investing.

          Thanks. I hope my sharing will help people. I am still continuing my CFP but have been very busy splitting my time between my family, business and investments. I am actually at CFA Level 2 when I left NY during my investment banking. I am not in investment banking anymore and I have wondered about whether I should continue my CFA. Compared to the CFP, I feel CFA is a lot more academical and requires a lot more commitment. CFP in my opinion is quite practical and is more localized to Singapore/Malaysia.

          • Hi Calvin,
            I guess CFP maybe more relevant in term of financial planning, and CFA is more for investment management aspect of what you will be doing. So it all depends on what you want to focus.

            I did CFA to enhance my qualification when i was working. But read a lot of books on Financial Planning since i stopped working, simply because nobody could teach my how to plan & invest when i retire at 36. I really like to read and learn, and then implement what i have learn by some modifications to suit my situation and local conditions. Important thing is the joy of learning new things. I hope you will also find joy and wisdom as you go along your learning curve to improvise yourself while helping others. I am still learning new thing by reading your blog and make adjustments in my portfolios. That’s the beauty of life-long learning…

          • Hi Sim,

            Yup life long learning is really important. I read a lot of books as well, my favourite store in any shopping mall happens to be the bookstore! So you are living in KL now? Since you are already retired, we can maybe meet up for a chat when you are free. Drop me an email!

  7. Hi Calvin,

    Thumb up for your fantastic blog. I’m aged 26, Malaysian, currently worked in Singapore and interested in REIT investment. But, I do not have much saving to invest due to just 2 years work. I did invest in SUNWAY REIT and it doesn’t seem as good as investing REIT in Singapore as it’s tax-free whilst in Malaysia, it doesn’t. Would like to get your advise on how to roll my small money into big. I think you might probably advise to invest in REIT. What do you think about the economic outlook in coming months as most of the analysts do expect uncertain global economy and most likely to have economic crisis. I’m really confuse to catch the right timing to stock up. Should I start to stock up for SUNTEC REIT as NAV is apparently low right now? Much Thanks!!

    • Hi Mee,


      In Malaysia, there is still a 10% withholding tax on the dividends of M REITs, so net of taxes, Singapore REIT returns are definitely superior. However, Malaysian REITs are more stable in prices as well as asset values. They also do not have cash calls regularly, unlike some of the Singapore REITs. I think those who have stayed invested in M REITs would be more comfortable, while the S REITs went through roller coasters.

      Yes, I would advise average cost investing into REITs and other high yielding stocks such as telcos. The dividends given yearly can be 6-9% depending on the price. Reinvest the dividends and over time, the compounding effect will snowball into large returns. While you can try to chase after capital appreciation like the traders or even trade CFDs, the risks are more significant and the ride is not for everyone.

      As you stated, the economy is in a state of uncertainty. Nobody knows whether it will go up or down. The best thing is to stay invested in defensive, high dividend stocks which perform regardless of the state of economy. So even if the prices come down, you know that the dividends will remain and help you to tide over the crisis. Also, make sure you still have a sum of cash set aside in case the economy goes down and you can take advantage of weakness in stock prices. It’s not the right time to be 100% invested at this point, I try to keep about 40-50% in cash right now.

      At current prices as of 9.1.2012, I like SMRT and Singpost for stocks. For REITs, I like Suntec, Starhill Global, LippoMalls, CapitaMall Trust and Ascendas REIT. However, do your own research and make sure you are comfortable with the company’s business before investing. Understanding what you are investing is your strongest protection against losing money in the stock market.

  8. Vincent says:

    I am new visitor to your site, like what I have read. Thank you.

    If you don’t mind to get your advice, I have around 12K in SRS account. Recently just invested 4 lots of Suntec, so still left few K more.

    As this SRS account is for long term, I prefer steady dividend stock that currently still at attractive price. Any advice?

    • Hi Vincent,

      Currently, there is a bull run in the general stock market and they are not as attractive as they were couple of months ago. If you can afford to wait, I would say wait for a correction before going in further. $12k is not a lot so I would keep the bullets until the valuations are more attractive.

  9. Hi Calvin,

    Very informative blog – thanks!

    Just a question regarding online brokers for SGX stocks. I have looked at a few of them. Saxo is the best in terms of commission rates, but they charge a $25 min fee, which can sometimes be annoying. The thing I dislike most about them is the 10% tax that they impose on SREIT distributions – they seem to be the only ones doing this, unless I am wrong?

    SCB looks like the best bet to me – they have no min commission and they do not have the SREIT tax. What is your view here?

    I like a lot of the High Yield Bond ETFs in the US, but they impose a 30% withholding tax for Singapore residents as there is no tax treaty between the two govts. I have an account with Interactive Brokers denominated in USD – just wondering what I can use it to buy now… Pointless being under Singapore tax code of 0% tax on dividends and cap gains if the US govt is going to tax you anyway.

    I have just set up a company in SIngapore and will likely be without any revenue inflows for the next year. As such, I am looking to put a portfolio of cash (from the sale of my house in London) into high div stocks, high yield bond ETFs (the current pricing is fantastic) and some SREITS. Do you think I have left anything obvious out that would provide a strong yield? ANy other countries (I here Taiwan has stocks that are strong and pay great div yields, but unsure how to access them).

    Thanks again!

  10. Hi Calvin,
    I follow the exchanges between yourself and Sim and wanting to meet up. hey! what about the rest of us. From the many postings on your site, I think there is a great demand from many people to be financially educated to build an income portfolio ,Get Rich and Retire Young. You are doing a wonderfully job here educating and helping others in building an income portfolio. The next great thing you may wish to explore is form Investment Clubs in KL / Singapore where members can come togther to learn, networking, teach, socialise and Grow rich together. You will have many people lining up to become members ,Inmagine The Possibilities.
    what you say, people, wanna meet up?

  11. hello calvin, i am 17 this year and hav just picked up an interest in investing. however i am unfamiliar with reits. While reading the income statements of some reits, i came across the term “changes in fair value of investment properties” which affects the net income of the reit. i am having trouble understanding how changes in the valuation of the investment properties affects the profit of the reit.

    • Hi jy,

      Changes in valuation of investment properties are recorded in the profit, however they are non cash and do not form part of the distributable income. You should focus on distributable income instead as that determines the dividends per unit.

  12. Hi Calvin

    Thanks for sharing your advice so freely with us. Do you think it is a good time to but S-reits now and if so, which ones?

    • Hi TMC, no problem. Retail REITs remain a good buy, such as CMT, MCT and Starhill. However, market is rather bullish so I would wait for a pullback before entering. If you do not yet own any stocks, it is still ok to initiate a small position in them and wait for a correction.

  13. Hi Calvin,
    Am learning REITS via your blog.
    You mentioned you will be posting Part 2 – an analysis of REITS’ NAV, leverage ratio etc for the man-on-the-street. However, I can’t find the article.
    If it’s already posted, could you please provide me the link in your blog?
    Thanks very much for your unselfish teaching. Very much appreciated.

    • Hi jojo, yup I have not written it yet. I need to go back and look through those which I left off. I will try to get to it as soon as I can.

      Thanks for following!

  14. For a Malaysian investor to invest in Singapore Reits, what is the tax rate? Payable in Singapore and Malaysia.

    How often Singapore REITs do cash calls for past 3 years?

    • Hi bern, S REIT dividends are non taxable for individuals.

      There are no set guidelines for rights issue, it can happen due to many reasons and at any time, acquisition, reducing debt etc. Each REIT manager has a different preference for capital raising so you can’t generalize it.

  15. Hi Calvin,

    Let say today a REIT wants to buy a new property. Because their leverage is low, they decide to get full bank loan to buy the property.

    1. Usually what kind of loans these REITs are getting? Is it a fully amortized mortgage loan, which REIT will repay the interest portion and principal portion of the loan each month?
    2. Typically what is the repayment period of the loan?

    3. If the loan is fully amortized loan, REIT will finish repaying both the interest and principal by the end of the loan. If REIT is not getting any new property, why’s the need to refinance?

    I am asking these questions because I get the impression that REIT always refinance when their old loan expires.

    Thank you :)

    • Hi ahyu,

      Unlike a normal property investor, REITs don’t normally buy properties with a fixed loan to valuation ratio. The purchase can be financed by a combination of cash, equity or debt. Debt is also not based on a single property, but the total asset size of the REIT. The leverage ratio is capped at 35% for unrated REITs and up to 60% for REITs with a debt rating.

      In general, most REIT loans are interest only loans and they are short term, less than 5 years in general. This is the reason they always have to refinance to roll over loans.

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