Is REITS still a good investment? – Update on Singapore REITS

The earnings reporting cycle for Q1 2020 has started. Many companies reported drop in earnings. We need to remember that their revenues were hit for at most half of Q1. Hence, their earnings may not be a full reflection of their real situation.

Following my last post on Singapore’s REITS last week where we saw a mini rally, the week that just passed saw the rally fade. Let’s now take stock since many REITS have started announcing their Q1 results.

SPH-REITS reported a decline of 78.7% in distribution per unit (DPU) at 0.3 cents. Not a pretty picture.

Let’s now consider ESR-REIT (J91U) on the Singapore stock exchange. On 23 Apr (2 days ago), they reported a Distribution per unit (DPU) of 0.5 cents. This represents a 26% drop year-over-year. Their share price closed at $0.315 yesterday. If they can maintain this DPU throughout the year, the projected yield would be 6.3% – supposedly very decent in such climate.

Summary of S-REITS

Whether this is a good buy is subject to a lot of other factors. This includes, but is not limited to the following:

  • How would their revenue be impacted with the full impact of covid-19 from Apr onwards? Singapore’s circuit breaker period is currently Apr to May. What if it is extended?
  • How much of their tenant base is badly impacted by the circuit-breaker and the larger slow down of the economy? Will this lead to foreclosures, reducing overall occupancy?
  • Do they have enough cash to weather this downturn? Their debt ratio is currently at ~41%. The authorities have recently raised the ceiling from 45% to 50% during this period. While there is more headroom, many of the other REITS currently maintain <40% ratio.

If ESR-REIT can continue to deliver above 5% in this climate, maintain a good tenant mix, adhere to the regulatory debt ratios & their sponsors remain financially sound, there will be upside to this stock. But in this current climate, no one can tell what will happen.

As always, a balanced & well diversified portfolio is the way to maintain stability for investors. REITS remain a good investment with stable returns. There are many different types of REITS – industrial, retail, hospitality, data-centre, etc. REITS that have recession-proof tenants will provide more stable returns. But their price-to-book ratios may not be attractive and yields may be much lower. So, it would be good to have a good mix of different types of REITS in your portfolio.

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