Real estate investment trusts (REITs) has been outperforming the market with double-digit returns year-till-date 2019. With most the REITs trading near their historical low dividend yields, is there still opportunity left in the REITs sector?
With that said, we have summarised the three highest-yielding REITs in the Singapore market right now.
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#1 Lippo Malls Indonesia Retail Trust
Lippo Malls Indonesia Retail Trust (SGX: D5IU) has been topping the list for the past twelve months. With a trading zone of S$0.20 to S$0.25, the Indonesian retail REIT has a dividend yield of around 8.5% to 9.5%.
So, what is the catch?
The REIT's distribution per unit (DPU) has been declining in the past few quarters. Some of the key reasons that contributed to the poor performances were higher operating expenses and weakening of Indonesian Rupiah. That said, backing by its sponsor Lippo Karawaci, the REIT managed to turn around and grew its DPU by 14.3% in the last quarter!
Source: REITs Insider Ratings: Lippo Mall's historical DPU
Nevertheless, the REIT would continue to face some challenges moving forward. The upcoming expiring master leases at Lippo Mall Kemang will have a negative impact on the DPU.
#2 Eagle Hospitality Trust
Second on the list is hospitality REIT, Eagle Hospitality Trust (SGX: LIW). At its current unit price of S$0.52, the REIT has a dividend yield of 8.8%. Its share price had dropped more than 30% since its IPO a few months ago. The Queen Mary saga has caused a dip on the share price. None of the Singapore REITs has suffered such a sell down in the first few months after IPO.
The REIT appeared as the top 10 institutional sells in the past two weeks. With the on-going saga between the REIT, its sponsor and the asset owner, the share price of the REIT is going to be choppy. For a REITs investor who is seeking stable passive income, the 8.8% REIT may not be the right choice at the moment.
Source: SGX Weekly Top 10 Institutional Buy/Sell (2 Dec 2019)
#3 Soilbuild Business Space REIT
The third highest yield, Soilbuild Business Space REIT, is trading at 8.4%. The REIT is holding multiple industrial buildings and business parks in Singapore and Australia.
In the most recent quarter, the REIT reported a drop of 26.3% in DPU. The enlarged unit base and the distribution of $1m to perpetual holders are the primary reasons that contributed to the poor performance. The portfolio has not been performing as well; the occupancy rate dropped to 88.4%, with a negative rental reversion of -3%.
While the three REITs above are offering high dividend yields, all of them are facing some challenges in the next six to twelve months. The REITs may look "cheap" with the recent price correction, but we prefer to remain them in the watchlist until some of the issues are overcome.
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