This is the second part of why we believe REITs should form an important part of your investment portfolio.
You can find the first part HERE.
6. Owning overseas properties
REITs open up numerous opportunities for investors to gain exposure to real estate that is typically out of reach to the common investor.
These include overseas properties or properties in niche sub-sectors that are tough for an investor to purchase individually.
You can target REITs that specialise in overseas properties to gain exposure to interesting sectors in different countries.
For instance, Manulife US REIT (SGX: BTOU) provides the unitholder with exposure to 12 commercial properties located in the US.
Sasseur REIT (SGX: CRPU), on the other hand, invests in four outlet malls in various provinces in China.
Elsewhere, Daiwa House Logistics Trust (SGX: DHLU), a newly-listed REIT, owns a portfolio of 14 logistics properties in Japan.
7. Regular distributions
Receiving a dividend is always a happy affair.
After all, who doesn’t enjoy having some extra cash in your pocket?
What makes this event even sweeter is when the stream of income is both regular and consistent.
REITs are well-known for paying out predictable distributions due to the requirement to pay out 90% of their earnings.
Many REITs, such as Mapletree Industrial Trust (SGX: ME8U), or MIT, and Suntec REIT (SGX: T82U) pay out quarterly distributions.
Others such as Keppel DC REIT (SGX: AJBU) pay out half-yearly distributions.
8. Dividend reinvestment option
Some REITs offer the option of accepting new units instead of cash distributions.
These new units are known as scrip and can allow you to increase your shareholdings in the REIT without incurring brokerage fees.
Some REITs even offer a slight discount to the last done unit price as a sweetener for unitholders when they elect for scrip.
By accepting scrip, you can slowly compound your distributions and enjoy even higher distributions from the REIT as time goes by.
An example of a REIT that offers scrip is Cromwell European REIT (SGX: CWBU).
The REIT has applied the distribution reinvestment plan (DRP) to its latest distribution of EUR 0.05602.
The issue price is also set at a 2% discount to the volume-weighted average price (VWAP) per unit on the Singapore Exchange.
For physical property, you cannot obtain fractional units, thus greatly limiting your reinvestment options.
9. Participation in further growth
REITs may, occasionally, turn to their existing unitholders to raise funds for yield-accretive acquisitions.
Some acquisitions may involve a mix of debt and equity, whereby the REIT will undertake both a private placement and a preferential offer of new units.
The process for a preferential offer usually involves the issuance of a set number of units for every 1,000 held by the unitholder.
Note that the unitholder has the right, but not the obligation, to accept his or her entitlement to subscribe for new units.
To increase the probability that more unitholders will take up their entitlements, such preferential offers are usually priced at a discount to the prevailing unit price.
A recent example is a preferential offer by Mapletree Logistics Trust (SGX: M44U), or MLT, to fund the acquisition of 17 logistics properties in China, Vietnam, and Japan.
Existing unitholders were offered 37 new units for every 1,000 existing units at an issue price of S$1.84 per unit.
This issue price was a 5.1% discount to the adjusted VWAP of S$1.9339.
Such preferential offers can be an effective way for unitholders to increase their stake in the REIT if the new units are offered at a sizable discount.
You also save on brokerage fees for accumulating more of the REIT.
10. Attractive 10-year annualised returns
Finally, REITs can offer impressive returns over the long term.
Of the 10 best-performing REITs over the last decade, eight have chalked up double-digit annualised total returns.
Total returns refer to the combined returns from capital gains cum dividends received over the years.
The top three candidates include the three Mapletree REITs, namely MIT, MLT and Mapletree Commercial Trust (SGX: N2IU), with annualised 10-year returns of 16.7%, 16% and 15.8%, respectively, as of 26 August 2021.
Parkway Life REIT (SGX: C2PU), a healthcare REIT that owns hospitals in Singapore and nursing homes in Japan, came in fourth with an annualised 10-year return of 15%.
As you can see, such returns are anything but boring and prove that owning the right REITs can be very rewarding for your pocketbook.
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Disclaimer: Royston Yang owns shares of Suntec REIT, Mapletree Industrial Trust and Keppel DC REIT.