In Singapore’s financial landscape, a diverse list of Real Estate Investment Trusts (REITs) has become a cornerstone of many investors’ portfolios. As a vehicle for passive income generation, choosing the right REITs can provide a higher yield compared to even the best fixed deposits in Singapore, while also offering the potential for long-term capital appreciation.
However, with numerous REITs listed in Singapore, it’s crucial to understand which metrics are most indicative of a REIT’s performance and potential.
In this article, we will delve into the essential factors to research when considering how to choose a good REIT, equipping you with the insights needed to make informed investment decisions in Singapore’s dynamic real estate sector.
Note: For the purpose of this article, let’s take a closer look at the earnings report of Mapletree Industrial Trust (ME8U).
Table of Content
- Why Choosing the Right REIT Matters
- What Are the Different Types of REITs listed in Singapore?
- Business and Financial Metrics to Consider When Evaluating REITs
- Key Considerations for Choosing the Right REIT
- Common Mistakes to Avoid When Choosing REITs
- How to Choose the Best REITs in Singapore
- Step 1: Define your financial goals (income vs. growth).
- Step 2: Research REIT types and sectors that align with your goals.
- Step 3: Evaluate the REIT’s financial metrics and management quality.
- Step 4: Check for geographical and sectoral diversification.
- Step 5: Monitor market trends and interest rate movements.
- Step 6: Use tools or platforms like Syfe REIT+ for simplified investing.
Why Choosing the Right REIT Matters
Investing in Singapore REITs can be a powerful way to diversify your portfolio and generate passive income. However the success of your investment hinges on selecting the right REIT for several reasons.
- Optimising Total Return: It’s not just about dividend yield. Choosing the right REITs listed in Singapore requires evaluating the potential for both consistent income and long-term capital appreciation.
- Navigating Market Cycles: Different REITs react differently to economic conditions. Strategic selection allows you to position your portfolio to weather market downturns and capitalise on upswings.
- Unlocking Undervalued Opportunities: Thorough due diligence can reveal undervalued REITs with strong fundamentals that the market hasn’t fully recognised, offering the potential for above-average returns.
- Matching Investment Horizon: Some REITs are better suited for short-term income generation, while others are geared towards long-term growth.
- Building a Resilient Portfolio: A well-diversified REIT portfolio, creates a more resilient portfolio capable of withstanding market fluctuations and economic uncertainties.
What Are the Different Types of REITs Listed in Singapore?
Singapore’s Real Estate Investment Trust (REIT) market offers a range of investment opportunities, each specialising in different property sectors. Understanding these sectors is key to building a well-rounded portfolio. Here’s a list of the main REIT types Singapore:
Diversified REITs
Diversified REITs offer a mix of property types, such as retail, commercial, industrial to create a more resilient investment. These REITs are influenced by broad economic conditions and the specific performance of each sector within their portfolio.
| Diversified REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| CapitaLand Integrated Commercial Trust | 14,305 | 5.6% | Singapore, Australia, Rest of Europe |
| CapitaLand India Trust | 1,478 | 6.1% | India |
| CapitaLand China Trust | 1,230 | 8.4% | China |
| Cromwell European REIT | 1,290 | 9.2% | United Kingdom, Rest of Europe |
| Frasers Logistics & Commercial Trust | 3,424 | 7.5% | Singapore, Australia, United Kingdom, Rest of Europe |
| Lendlease Global Commercial REIT | 1,357 | 6.9% | Singapore, Rest of Europe |
| Mapletree Pan Asia Commercial Trust | 6,475 | 7.0% | Singapore, Hong Kong, China, South Korea, Japan |
| OUE REIT | 1,511 | 7.2% | Singapore, China |
| SUNTEC REIT | 3,330 | 5.7% | Singapore, Australia, United Kingdom |
- Source: SGX S-REITs Chartbook, Q4 2024
Industrial REITs
Industrial REITs represent vital components of the modern economy, focusing on properties that support manufacturing, logistics, and the digital infrastructure that powers our interconnected world.
Both sectors are experiencing significant growth and transformation, with trends like automation, AI, and the rise of cloud computing shaping their future.
| Industrial REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| CapitaLand Ascendas REIT | 11,520 | 5.7% | Singapore, Australia, Rest of Europe, United States |
| ESR-Logos REIT | 2,076 | 8.8% | Singapore, Japan, Australia |
| Mapletree Industrial Trust | 6,599 | 5.8% | Singapore, Japan, United States |
| Mapletree Logistics Trust | 6,469 | 6.7% | Singapore, Hong Kong, China, Malaysia, Vietnam, South Korea, Japan, India, Australia |
- Source: SGX S-REITs Chartbook, Q4 2024
Retail REITs
Retail REITs listed in Singapore own and manage shopping malls, retail outlets, and other retail spaces. Given the direct correlation with consumer spending, the performance of retail REITs often reflects the economic climate and consumer health.
Singapore’s suburban retail REITs are expected to see strong growth in 2025, driven by favourable economic conditions and organic expansion opportunities. While concerns have been raised about retail spending shifting to Johor Bahru with the upcoming Rapid Transit System (RTS), analysts view this as an overstated risk.
Meanwhile, centrally located malls could face headwinds as a strong Singapore dollar dampens tourist spending.
| Retail REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| Paragon REIT | 2,442 | 5.7% | Singapore, Australia |
| Sasseur REIT | 876 | 8.7% | China |
| Starhill Global REIT | 1,145 | 7.3% | Singapore, China, Malaysia, Japan, Australia |
- Source: SGX S-REITs Chartbook, Q4 2024
Office REITs
Office REITs focus on owning and managing office buildings and commercial spaces, making them closely tied to the health of the broader economy and business activity.
Investors typically seek REITs with high occupancy rates, strong tenant profiles, and favourable lease terms. While flexible work arrangements have reshaped the office sector, a shift back to in-person work is gaining momentum.
Analysts expect this move to drive greater office space demand, with corporate giants like Amazon, JPMorgan, and Boeing also reinforcing return-to-office policies. With valuations remaining attractive, the outlook for these REITs is improving as demand strengthens.
| Office REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| Keppel REIT | 3,287 | 6.7% | Singapore, South Korea, Japan, Australia |
- Source: SGX S-REITs Chartbook, Q4 2024
Hospitality REITs
Hospitality REITs focus on hotels and resorts, making them particularly sensitive to travel and tourism trends.
The hospitality industry is inherently cyclical, with economic downturns and global events impacting performance. However, it also presents strong growth opportunities during travel booms.
With the recovery of international tourism and an improved operating environment, the sector has potential for sustained growth.
| Hospitality REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| CapitaLand Ascott Trust | 3,379 | 7.1% | Singapore, China, Malaysia, Vietnam, Indonesia, South Korea, Japan, Rest of Asia, Australia, United Kingdom, Rest of Europe, United States |
| Far East Hospitality Trust | 1,239 | 6.7% | Singapore |
| Frasers Hospitality Trust | 809 | 5.4% | Singapore, Malaysia, Japan, Australia, United Kingdom, Rest of Europe |
- Source: SGX S-REITs Chartbook, Q4 2024
Healthcare REITs
Healthcare REITs invest in a variety of healthcare-related properties, including hospitals, medical centres, clinics, and senior housing facilities. The performance of healthcare REITs is often driven by demographic trends, such as ageing populations and increasing demand for healthcare services.
Investors interested in learning how healthcare REITs work, can delve deeper into the factors that drive their performance. These factors include the age and quality of the properties, the financial health of the tenants, and the long-term outlook for the healthcare sector.
Often seen as a defensive investment, the healthcare sector benefits from long-term demographic and socio-economic shifts.
| Healthcare REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| First REIT | 534 | 9.4% | Singapore, Indonesia, Japan |
| Parkwaylife REIT | 2,479 | 4.0% | Singapore, Malaysia, Japan |
- Source: SGX S-REITs Chartbook, Q4 2024
Specialised REITs
Specialised REITs target specific real estate sectors like data centres or logistics. This focus provides investors with targeted exposure to high-growth, niche markets, rather than broad property portfolios.
These REITs often exhibit unique risk-reward profiles driven by the specific sector’s dynamics. Investors should thoroughly assess factors like technological disruption, regulatory changes, and industry-specific demand trends, as these can significantly impact performance.
| Specialised REITs | |||
| REITs | Market Cap (S$Mil) | Distribution Yield | Country Exposure |
| Digital Core REIT | 1,067 | 5.8% | Japan, Rest of Europe, United States |
| Keppel DC REIT | 4,575 | 4.0% | Singapore, China, Malaysia, Japan, Australia, United Kingdom, Rest of Europe |
Business and Financial Metrics to Consider When Evaluating REITs
While the type of REIT listed in Singapore provides a broad overview of its investment focus, evaluating individual REITs requires a deeper dive into specific business and financial metrics. Engaging in such research allows investors to understand how REITs work and how to choose a good REIT that fits their risk profile.
Business Fundamentals: Operational Insights for REITs
Occupancy Rate
Occupancy rate reflects the percentage of the REIT’s properties that are currently leased.
In general, a higher occupancy rate, the better; a high occupancy rate generally signals strong demand for the list of the REIT’s properties in Singapore and can be an indicator of effective property management and healthy cash flows.
On the flip side, a low occupancy rate may hint at challenges in attracting or retaining tenants, which could impact the REIT’s revenue and profitability.
Most investors consider occupancy rate as a key performance indicator and monitor this metric as it directly affects the REIT’s rental income and, consequently, its overall performance.
Weighted Average Lease Expiry (WALE)
WALE measures the average time that leases in a property will expire.
In Mapletree Industrial Trust’s case, it reported an overall portfolio WALE of 4.6. What this means is that the REIT’s current leases have an average of 4.6 years before they expire.
There’s no official yardstick used to determine what’s a ‘good’ WALE, and investors should not take the absolute value of this figure at face value when making an investment decision; a lower WALE doesn’t necessarily mean that the REIT is not a worthwhile investment.
For example, a REIT’s properties might be located in markets experiencing declining rents or high vacancy rates, and a long WALE might be masking potential issues with tenant renewals or re-leasing at favourable rates.
Rental Revision/Rental Reversion Rate
Rental reversion and rental revision rates, sometimes used interchangeably, show the change in rental rates when a new lease is signed or an existing lease is renewed. This change may result in a difference in agreed rental rates that affects a REIT’s rental income.
An increase in rental rates translates to positive rental reversion, while a decrease in rental rates means negative rental reversion for the REIT.
As an investor, you should look out for REITs with positive rental reversion rates, as this typically suggests a strong demand for the REITs’ properties.
Financial Health: Assessing REIT Performance
Distribution per Unit (DPU)
DPU is the amount of money that an investor is entitled to per unit of REIT owned and is calculated by dividing the total distributable income by the total number of shares of a REIT.
To illustrate, imagine if a REIT distributes $10 million in total and has 50 million shares; the DPU is calculated by dividing $10,000,000/50,000,000 units = DPU of $0.20 per share.
For many investors, REITs are a way to get a steady income stream; a higher DPU means more income in your pocket, and for that reason, you’d ideally want to invest in a REIT with a higher DPU.
Additionally, DPU can be used as a performance indicator since it reflects the REIT’s ability to generate and distribute profits from its property portfolio. Consistently or growing DPU over the past few years may indicate a REIT’s stable or improving performance. On the other hand, it might be a red flag if DPU is declining or inconsistent.
In this example, Mapletree Industrial Trust has a DPU that’s been consistently growing. While it dipped in 2021, the REIT saw a rebound in its DPU that’s since been improving.
Net Property Income (NPI)
Net property income is calculated by subtracting the total property-related expenses from the total revenue of a property. This metric is used as a measure of the property’s ability to generate income and is used to gauge the financial performance of the property.
The net property income of most REITs listed in Singapore can be found in their financial documents like their financial statements like the example above.
To determine the REIT’s NPI, zoom in on the row with ‘Net property income’ indicated; from the screenshot, we can see that Mapletree Industrial Trusts’ NPI grew 0.6% in Q1 FY24/25 vs Q4 FY23/24.
These reports will also usually state the reason for the worsening or improving performance of the REIT. Mapletree Industrial Trust, for instance, stated that their net property income increased due to lower property maintenance expenses from the Singapore Portfolio that were partially offset by the loss of income from the divestment of Tanglin Halt Cluster.
Gearing Ratio/Average Leverage
Average leverage, or more commonly known as gearing ratio, shows the ratio of a REIT’s debt to total assets. It provides insight into how much financial risk the REIT is taking on by using borrowed funds.
Understanding the gearing ratio helps investors gauge the level of risk associated with investing in the REIT. It’s important for assessing whether the REIT’s debt levels are manageable and if it can sustain its obligations.
An optimal gearing ratio usually falls between 25% to 50%, and in Singapore, REITs have a gearing limit of 45%
Debt Expiry Profile
The debt expiry profile outlines the maturity dates of a REIT’s outstanding debt. This includes everything from short-term loans to long-term bonds. It’s usually presented in a chart or table that breaks down when each portion of the debt is set to mature over the coming years.
Knowing the debt expiry profile helps you assess the risk associated with a REIT’s debt. If a large chunk of debt is set to mature in the near term, it might pose a refinancing risk, especially if market conditions are unfavourable. In contrast, a well-staggered debt maturity schedule can reduce this risk by spreading out repayment obligations.
Using Mapletree Industrial Trust as an example, this REIT has a well-spread debt maturity profile, with its longest debt maturing in FY38/39.
Key Considerations for Choosing the Best REIT in Singapore
Before investing in a REIT, it’s crucial to carefully evaluate several key factors to ensure alignment with your investment goals and risk tolerance.
Sector Focus
REITs specialise in various property sectors, such as retail, office, industrial, healthcare, and hospitality. Consider your investment preferences and the long-term outlook for different sectors before making a decision.
Dividend Yield
Real Estate Investment Trusts (REITs) are known for their dividend payouts. Look for REITs listed in Singapore with a history of consistent and attractive dividend yields.
Geographical Exposure
Diversifying your REIT portfolio geographically can help spread risk. Consider REITs with exposure to different countries or regions. This can help mitigate risks associated with economic or political events in any single location.
Gearing Ratio
The gearing ratio indicates the level of debt a REIT has relative to its assets. A higher gearing ratio means more debt, which can increase risk. Assess the REIT’s gearing ratio and its ability to manage its debt obligations effectively.
Management Quality
The experience and expertise of the REIT’s management team play a crucial role in its performance. Look for REITs with experienced managers who have a strong track record of delivering returns and navigating market challenges.
Common Mistakes to Avoid When Choosing REITs
While REITs can be a valuable addition to an investment portfolio, it’s essential to approach them with a discerning eye. Many investors fall into common traps that can hinder their returns and expose them to unnecessary risks.
Focusing Only on High Dividend Yields
A high dividend yield can be tempting, but it is best to look beyond this single metric. A high yield could indicate a strong REIT in Singapore, but it could also be a sign of higher risk or an unsustainable payout. Consider the REIT’s overall financial health, property portfolio, and future prospects, not just its current yield.
Ignoring the Gearing Ratio
The gearing ratio measures a REIT’s debt relative to its assets. A high gearing ratio means the REIT has more debt, which can increase risk, especially during economic downturns. Consider the gearing ratio in relation to the REIT’s overall financial health and its ability to service its debt.
Neglecting Property Sector Trends
Different property sectors perform differently depending on economic conditions and market trends. When learning how to choose a good REIT, staying informed about sector-specific trends is a good habit to practise.
Overlooking Geographical Diversification
Consider investing in REITs with exposure to different countries or regions to reduce your portfolio’s vulnerability to economic or political events in any single location.
Failing to Assess Management Quality
Look for experienced managers with a strong track record of delivering returns and managing risk effectively. A good management team can navigate challenges and capitalise on opportunities, enhancing the long-term performance of the REIT.
Ignoring Economic and Market Conditions
Economic and market conditions can significantly impact REIT performance. Consider factors like interest rates, economic growth, and market sentiment when making investment decisions. For example, rising interest rates can impact a REIT’s borrowing costs and potentially affect its profitability.
Overlooking Fee Structures
Different REITs listed in Singapore have different fee structures. Understand the fees associated with investing in a particular REIT, including management fees, performance fees, and other expenses. High fees can eat into your returns, so it is best to factor them into your investment decisions.
How to Choose the Best REITs in Singapore
Building a successful REIT portfolio requires careful selection and due diligence. With numerous REITs available in Singapore, having a clear strategy and understanding of the factors that contribute to a REIT’s performance and potential is a formula for success.
Here’s a step-by-step guide to help you choose the best REITs for your investment goals:
Step 1: Define Your Financial Goals
Start by clearly defining your investment objectives. Are you primarily seeking regular income from dividends, long-term capital appreciation, or a combination of both? Your financial goals will shape how you choose a REIT that is good for your investment horizon.
Step 2: Research REIT Types and Sectors
Explore the different types of REITs and the property sectors they focus on. Consider which sectors align with your investment goals and risk tolerance.
For example, if you’re seeking stable income, you might consider REITs listed in Singapore with a focus on essential properties like healthcare or industrial facilities.
Step 3: Evaluate the REIT’s Financial Metrics and Management Quality
Delve into the REIT’s financial statements and key performance indicators. Assess its financial health, including its gearing ratio, occupancy rates, and rental income. Also, research the management team’s track record and experience.
Step 4: Check for Geographical and Sectoral Diversification
Diversification is key to managing risk. It is best to consider REITs with exposure to different geographical regions and property sectors. This can help reduce your portfolio’s vulnerability to economic downturns or sector-specific challenges.
Step 5: Monitor Market Trends and Interest Rate Movements
Stay informed about market trends and economic conditions that can impact REIT performance. For example, rising interest rates can affect a REIT’s borrowing costs and potentially influence its profitability.
Step 6: Use Tools or Platforms Like Syfe REIT+ for Simplified Investing
Consider leveraging investment platforms or tools that can simplify the process of REIT selection and portfolio management. Syfe REIT+, for example, offers curated REIT portfolios designed to meet specific investment goals and risk profiles.
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