Are Singapore REITs’ dividends really “less than what you anticipate for retirement?”
I read an article — Singapore REITs have paid out less dividends to unitholders than the amount of capital they raised from investors. Even if these REITs showed positive annual returns and dividend yield.
Source: Business Times Article 16 March 2022
For example, IREIT Global is a major Singapore REIT that invests in European assets, across Germany, Spain and France. Most of its properties are office, retail and industrial buildings.
In its recent FY2021 results, its distributable income rose 25% as compared to the year before. And its property value rose too.
Since its IPO in 2014, IREIT Global has paid S$239 million of its distributable income as dividends.
Distributable income is the net profits that’s available for IREIT Global to pay dividends to shareholders.
But over the same period, IREIT Global has raised S$352 million from the stock market — through rights issue. This included last year — IREIT raised $120 million from the stock market to buy Decathlon’s 27 retail properties in France.
Rights allows existing IREIT unitholders to buy more shares from the Singapore REIT at a discounted price. It’s a quick way for IREIT to raise money from the stock market.
What this means, is IREIT Global has raised more money it pays dividends to its investors. If you had owned IREIT Global since its IPO, and bought all its rights issue over the last eight years, you’d have put back whatever dividends you collected. And more.
Singapore REITs need to raise money to grow their assets
In Singapore, a REIT has to pay out at least 90% of their income as dividends. So that leaves little for them to buy new assets. Singapore REITs buy assets by borrowing debt and raising equity.
And since IREIT is a small REIT, there’s incentive for the REIT to grow.
More assets, means more fees to collect.
IREIT isn’t the only one.
One of the most aggressive Singapore REITs was Keppel REIT. That was because it bought a controversial acquisition — Ocean Financial Centre from its sponsor Keppel Land. Back then, Keppel REIT issued a 17-for-20 rights to pay for the property. That’s means — for every 17 shares you own in Keppel REIT, you have the right to buy another 20 new shares. If you don’t do buy, your shareholding gets diluted — for the same amount of shares, you get a lower share of the rental income from Keppel REIT.
Not a good idea if you only rely on Keppel REIT for your retirement.
Now, what I don’t agree with the article is not all REITs are the same.
For example, Parkway Life REIT is more passive in their acquisitions. And has recently raised money to buy more Jana nursing homes. And since its IPO in 2007, this Singapore healthcare REIT has grown close to 300% in shares gain (excluding dividends).
This is also one of the best performing Singapore REITs.
Source: ShareInvestor Webpro
One good way is to make sure…
Each Singapore REIT’s acquisition is yield accretive
It means every property they buy, the distribution per unit (DPU) must go up.
The recent biggest purchase of a property was Lendlease REIT. It bought over the entire Jem. And it showed its DPU will grow after buying this acquisition. This is considered yield accretive.
If the Singapore REIT doesn’t show you the exact calculations, you can figure it out yourself here.
Source: Lendlease REIT Presentation Slides
When the property acquisition is yield accretive, you know the additional money you put in the REIT will be invested in a profitable asset — full occupancy rate, strong rental income and high quality tenants.
What’s more, over time, these properties will continue to collect rental income, increasing your distribution over time.
The problem is if the properties they buy aren’t yield accretive. Meaning, the DPU doesn’t grow after the property is purchased.
What I’ll do as is to make sure Singapore REITs not only own high quality assets, but also make sure these Singapore REITs don’t over pay for new property assets by checking whether DPU will grow after the acquisition.
And over the years, if Singapore REITs don’t actively buy new properties and able to grow their rental income, it’s actually good for shareholders.
If IREIT doesn’t buy anymore properties, at some point, the rental income it collects will more than compensate for the total amount of rights it will collect over time.
Sometimes investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
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