Lion Global Investors and Phillip Capital Management marks first joint partnership with the Lion-Phillip S-REIT ETF
Real Estate Investment Trusts (REITs) were introduced in Singapore in 2002. They are specialised funds that buy properties with the intention of generating a regular stream of income. Investors in REITs receive dividends and also benefit if the properties that have been purchased increase in value.
The units that a REIT issues are traded on the stock exchange and provide investors with a high degree of liquidity. There are currently 43 REITs and Property Trusts that are listed on the Singapore Exchange. A recent research report prepared by The Singapore Exchange describes how these trusts have performed in the year to June 2017.
Many of the REITs have provided dividend yields of over 7%. IREIT Global, a trust that invests in office properties in Germany, has paid dividends that have given investors a return of 8.3%. Viva Industrial Trust, which specialises in Singapore properties, has also provided a dividend yield of 8.3%.
There are a handful of REITs that have not declared any dividend at all. However, your investment decision should not be based only on the returns that you get in the form of dividends. Appreciation in the price of a unit can provide a capital gain.
Selecting the REIT with the greatest potential can be difficult. There are dozens to choose from and it can be time-consuming to analyse their financial statements. When purchasing units of a REIT, it is important to buy at the right price. Ideally, the market value quoted on the stock exchange should reflect the underlying value of the assets that the REIT owns.
But a quick analysis of S-REITs, as Singapore’s REITs are known, will show that the ratio of the price of a unit to its book value can vary widely. There are REITs that trade at 0.8 or their book value while there are others that command a valuation of 1.6.
For the ordinary investor, it can all get very confusing.
Now there is another option: investing in a S-REIT ETF.
On Oct 2, Lion Global Investors and Phillip Capital Management launched the Lion-Phillip S-REIT ETF, the first ETF that is focused solely on S-REITs to be listed on the Singapore Exchange on Oct 30.
The fund tracks the Morningstar Singapore REIT Yield Focus Index, a strategic beta index that constitutes 23 of Singapore’s best-performing REITs, based on Morningstar’s investment research.
Here are some reasons to invest in a REIT ETF.
1. High yields
A REIT ETF can be relied upon to provide you with a constant stream of income. This is an ideal investment for those who are looking for a product that generates steady returns. You can expect to earn at least 5% in dividends every year on your investment.
Consider the CapitaLand Mall Trust, which was established in 2001 and which started trading on the Singapore Exchange in July 2002. The Morningstar Singapore REIT Yield Focus Index currently gives it a weight of 10.76%. This implies that for every S$1,000 invested in the Lion-Phillip S-REIT ETF, S$107.6 will be invested in the CapitaLand Mall Trust.
The CapitaLand Mall Trust’s financial results for the first half of 2017 indicate that its distribution per unit yield (DPU) was 5.6% for individual investors.
A study of the above chart from the CapitaLand Mall Trust’s financial statement makes it quite apparent that REITs offer the highest yields available to investors when compared with other investment options.
Singapore’s property market consists of various segments. Consequently, many S-REITs have specialised and purchase real estate that is used only for a specific purpose. A REIT could limit its investments to properties that are used for:
- Retail and shopping malls
- Office space
- Industrial units
- Hospitals and healthcare facilities
By buying a REIT ETF, you can diversify your investment. Instead of investing in only retail properties or hotels, your investment would include the entire range of real estate applications.
Property investments can be very expensive. Buying a relatively inexpensive flat or office property can set you back by hundreds of thousands of dollars. A REIT ETF provides a good alternative. You can gain all the benefits of buying property by investing as little as a hundred dollars.
For instance, the lot size of the Lion-Phillip S-REIT ETF on the Singapore Exchange is only 100. As a unit’s face value is S$1, the minimum investment amount is S$100.
Should you invest in a S-REIT ETF?
According to a report in the Straits Times, S-REITs generated an average total return of 17.6% between 1 January 2017 and 4 August 2017. This return includes both the dividend and the price appreciation of the units issued by the REITs.
It is important to remember that every S-REIT does not perform equally well. In fact, the report points out that at the top end, the CDL Hospitality Trust returned 30%. Fortune REIT was at the bottom of the list. It provided a return of only 8%.
The Lion-Phillip S-REIT ETF gives investors an opportunity to consistently be invested in a basket of high-yielding, high quality REITs with good financial health, whenever the index is rebalanced semi-annually.
Highlights of the Lion-Phillip S-REIT ETF
On top of that, The Morningstar Singapore REIT Yield Focus Index caps the weights for individual REITs at 10% during its rebalancing exercise in June and December, to ensure that there is a good mix of REITs within its constituents.
The S-REITs that comprise the Morningstar Singapore REIT Yield Focus Index are also distributed across the spectrum of the various property sub-sectors.
Investments in the Lion-Phillip S-REIT ETF will be spread out between properties utilised for office space, retail and malls, industrial purposes, hotels, and the healthcare sector, providing further diversification.
At the same time, Singapore’s property prices have finally started looking up. In the third quarter of 2017, the private residential property index issued by the Urban Redevelopment Authority, a government body, registered a rise of 0.7 points. This was its first increase in the last four years.
While it is difficult to say if this increase is the start of a trend, investing in the Lion-Phillip S-REIT ETF offers one simple and convenient way to invest into Singapore’s property market.