3 Reasons Why Singapore REITs Remain an Attractive Option for Income Investors

If you have the nagging suspicion that your neighbourhood coffee is costing more, no, you are not imagining things.

Singapore’s core inflation hit a 14-year high of 5.5% earlier this year and has recently declined to 4.2% in June.

Inflation erodes the value of your money because it causes a sustained rise in the prices of goods and services.

Interest rates have also risen sharply in the past 18 months, making mortgages more expensive as banks reprice their loans.

Placing your money in banks may sound like a safe option, but the interest rates they offer cannot help you to beat inflation.

Investing in real estate investment trusts, or REITs, on the other hand, is a viable choice.

This asset class is an attractive option for income-seeking investors who are not just looking to beat inflation but are looking for a reliable source of passive income.

Here are three reasons why REITs are a great way to invest for income.

A dependable source of dividends

A REIT’s portfolio consists of property assets that are managed professionally by a REIT manager.

REITs are mandated to pay out at least 90% of their net profit as distributions to enjoy tax benefits.

Because of this characteristic, REITs are viewed as reliable sources of dividends as they need to pay out regular distributions.

If you are a salaried employee, owning REIT means you can enjoy an additional layer of passive income to help with rising expenses.

If you are retired, the regular distributions act as a source of income that can replace active income and allow you to enjoy the same lifestyle you had while you were working.

REITs such as Parkway Life REIT (SGX: C2PU) and CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, pay distributions every six months. 

There are also REITs such as Mapletree Logistics Trust (SGX: M44U), Suntec REIT (SGX: T82U) and AIMS APAC REIT (SGX: O5RU) that pay their distributions quarterly.

By owning a portfolio of REITs, you can enjoy a steady flow of passive income into your bank account.

High distribution yields that can beat inflation

REITs are also attractive because they offer distribution yields that exceed the inflation rate.

Take Mapletree Industrial Trust (SGX: ME8U), or MIT, as an example.

The industrial REIT’s trailing 12-month distribution per unit (DPU) stood at S$0.1347, giving its units a distribution yield of 6.1%.

CICT’s units offer a trailing distribution yield of 5.6% at its recent unit price of S$1.90.

It is important to check whether each REIT’s DPU is sustainable looking ahead and to not just rely on its distribution yield as a factor to decide on whether to purchase it.

A key attribute to look for is REITs with strong sponsors that can help to support the REIT through tough times and to provide them with a pipeline of potential assets for acquisition.

Potential growth through acquisitions and AEIs

Finally, the best aspect of a REIT is that its DPU can continue to grow over time.

The REIT manager can achieve this growth through a combination of organic growth and/or acquisitions.

With a growing DPU, your level of passive income will also steadily rise over time.

Parkway Life REIT has managed to increase its core DPU every single year without fail since its IPO in 2007.

DPU went from S$0.0683 in 2008 to S$0.1438 in 2022 for a compound annual growth rate (CAGR) of 5.5%.

Keppel DC REIT (SGX: AJBU) has also displayed an impressive track record of uninterrupted DPU increases since its debut on the stock exchange in December 2014.

The data centre REIT’s DPU increased from S$0.0651 in 2015 to S$0.10214 in 2022 through a mix of organic growth and acquisitions.

The growth represented a CAGR of 6.6% over seven years.

The examples above illustrate how well-managed REITs can grow their DPU consistently through a mixture of methods.

By owning such REITs, you can collect more money in your bank account over time.

To fully harness the power of compounding, you can even reinvest these distributions back into the same REITs that paid them out.

Reinvesting your dividends and enjoying a steadily-higher DPU will enable your passive income stream to increase much faster than just relying on an increasing DPU alone.

Get Smart: REITs deserve a place within your investment portfolio

The evidence is clear.

REITs are a great instrument for income-seeking investors as they pay out a dependable distribution and enjoy yields higher than the inflation rate.

Moreover, well-managed REITs with quality portfolios can also increase their asset base and DPU over time, making them a great choice for dividend investors.

Is it a good time to buy into Singapore REITs? If you’ve thought about it, then our latest REITs guide will be an essential read. This exclusive pdf report shows you why REITs are still excellent assets, what sectors to look out for and how to find good REITs today. The info inside can help you build a solid retirement portfolio. Click here to download it for FREE.

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Disclosure: Royston Yang owns shares of Suntec REIT, Keppel DC REIT and Mapletree Industrial Trust.


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