Every Sunday, I will try to discuss different investment products or
educational materials to educate and improve the investment knowledge for every
one. For the first Sunday "educational" series, we will look at
something close to my heart, Singapore
What is SREIT?
Basically
SREIT stands for Singapore Real Estate Investment Trust.
It
is a trust whereby a portfolio of real estates/properties is being listed on
the SGX itself.
SREIT
usually distribute at least 90% of their income to unitholders so as to enjoy
tax concession from the Singapore
As
such, SREIT usually provides a stable and recurring dividend to their
unitholders.
Why do developer list their portfolio of properties as REIT?
The
reason why the big developers (the like of Keppel Land
- Recycling
on capital. By listing the properties as a REIT, the developer can
effective liquidate the assets, unlocking the value
and deleverage their balance sheet. With the cash proceed from the
listing, the developers will have more bullet (ie cash) to grow their business.
In addition, the REIT will also become their future investment vehicles whereby
they can just inject the asset into the REIT for capital recycle.
- Retain majority share holding of the REIT & continue
to benefit from the stable cash flow. Usually, the developers retain a
sizable holding on the REIT so that it can retain the benefit of the cash
payout of the REIT. With this sizable holdings, they are usually known as the
sponsor of the REIT as effectively they provide an "implicit"
guarantee to the REIT.
- Ability to earn a fee income on managing the REIT. The
sponsor will eventually become the asset manager of the REIT and this provide
the sponsor with another sources of stable management fee. This is another
source of income for the sponsor.
From
my observation, only matured properties are listed as REIT as all the value has
been fully enhanced and they are matured enough to generate stable payout for
the unitholders
Why invest in SREIT?
Stable and recurring payout. Due to the 90% payout and the
strong property market in Asia , SREITs has in
generally been paying stable unit distribution/dividend. Thus REITs offer a
stable and recurring payout which is largely suitable for a investor who wants
to build up their passive income.
Visibility of the asset. Another reason why REITs especially those
with high exposure in Singapore
Implicit guarantee from sponsor. In addition, some of the biggest
SREITs listed are by well known local developers. With the strong sponsorship
of this well known company, it provides a sense of comfort due to the implicit
guarantee the sponsor provides.
Understanding and Investing in SREIT
Net Asset Value
Net
Asset Value is basically:
(Total
Asset, valued at Market Value - Total liabilities)/(Total number of outstanding
share)
Example:
A
company with investment properties of 100K book value, market value of 120K.
With
a total liabilities of 60K and have outstanding number share of 6K.
Thus
NAV = (120k - 60K)/6K = 10/share
Taking
the example above, if the share price of the REIT is 11, the REIT is trading at
a premium of 1.
If
share price of REIT is 8, the REIT is trading at a discount of 2.
Theoretically,
a REIT trading at a premium is considered overvalued as you are paying 1 dollar
extra for a NAV of 10 where a REIT trading at a discount is considered
undervalued as you are paying 2 dollar less for a NAV of 10.
Dividend Yield
Dividend
Yield = Project Annual Payout/Price of REIT
As
the REIT is mandated to pay out at least 90% of the cash, it is seem as a form
of stable dividend play.
Type of REIT
REITS
are usually classified into the various form:
Retail
- Shopping mall
Industrial
- Warehouse, logistics and industrial parks
Office
- Offices building
Residential
- Residential housing
Hospitality
- Hotels or hospital
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