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Tuesday, January 27, 2015

Investing In REITs - Participate In The Success Of Shopping Malls

The Real Estate Investment Trusts (REITs) in Singapore has come a long way since its inception in early 2002. Since then, REIT listings on the SGX has continued to grow, reaching a total of 34 listings by the end of 2014. With a market capitalization of more than US$65 billion, it has indeed become one of the most popular instrument for people interested in property investments.


Mapletree Vivocity
Vivocity Lifestyle Mall

I had the opportunity to have dinner at the iconic Vivocity Mall at Harbour Front on a Saturday evening. Boasting a lovely skypark, a huge array of retail stores and a monorail service to Sentosa, Vivocity is indeed one of the premier malls in the south of Singapore. It was therefore no surprise that the mall was packed with people !

The popularity of the mall lead me to think about how successful Retail REITs have become in Singapore, in particular the Mapletree Commercial Trust (SGX: N2IU), which is the trustee for Vivocity.

As such, i was inspired to write about the topic on investing in REITs and why we should indirectly participate in the success of these properties.

Diversification


REITs typically own a few properties under their portfolio. For example: SPH REIT (SGX: SK6U) owns the Paragon and Clementi Mall. Paragon's main tenant pool consists of luxury brands, premier retail outlets and medical specialist clinics. Catering mainly for the luxury retailers and high-end healthcare users. However, Clementi Mall's tenant pool is like any typical suburban, family mall. As you can see, each of the properties under SPH REIT is clearly diversified and caters to different groups of the population. 

In addition, you can diversify further by selecting REITs based on the type of properties or geographical region you want to invest in. (Examples: Retail, Hospitality, Healthcare, Logistics, Industrial, Residential)

Affordability


Private investors are able to afford ownership of properties without having to fork out millions of dollars to buy a physical property. As a REIT investor, you will not need to break the bank to own a piece of your favourite shopping mall. For example, units of Mapletree Commercial Trust (SGX: N2IU) closed at S$1.545 on the 26JAN15. A single lot* can be purchased for just $154.50. In comparison, buying the whole of Vivocity (a 205,000 sqf mall) will likely go into the millions.

* 100 Shares Per Lot

Liquidity


REITs are listed on the stock exchange (SGX) and you can trade a REIT during the trading hours (9AM to 5PM) with a simple click of a button. Indeed, with the online web portals and mobile applications, it is easier to buy and sell a REIT than to buy and sell physical properties. All you will need is to open an account with any of the local brokerage firms (Example: Philips - Poems, DBS Vickers or UOB Kayhian).

Distribution


REITs are required to distribute at least 90% of their NET Income after tax as dividends. Being a shareholder of a REIT gives you partial ownership to all the real estate that it owns, and the dividend distribution which typically happens every quarter. 

For instance, Soilbuild Business Space REIT (SGX: SV3Ureported its earnings on 21JAN15. The REIT closed its fiscal year by reporting a total of 6.193 cents in distribution for the full financial year. Its distribution for the 3 months to 31DEC14 is at 1.585, it would represent a distribution yield of approximately 7.8% (at the closing price of $0.805).

Summary


As a unit holder of a REIT, you share the benefits and risks associated in owning a portfolio of property assets, which typically distribute income at regular intervals. This income is derived from the rental revenues obtained from contractually-binding lease agreements between the trust and its tenants. Whilst REITs are a great source of passive income, just like any other investment, it is also important to understand the structures, risks involved as well as the underlying properties that are managed by the REITs before investing!

See also: How To Earn Passive Income

Image Credits: Mapletree Commercial Trust, Vivocity