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Are S-REITs or Singapore REIT ETFs a Better Investment?

If you’re looking to invest into Singapore real estate investment trusts (S-REIT), is it better to invest directly into individual S-REITs or an SGX-listed REIT exchange-traded funds (ETF)?

S-REITs

There are 43 S-REITs and property trusts with a total market cap of S$110B as at 30 June 2022, as quoted from REITAS here. So clearly there are is no shortage of options if you want to invest directly into S-REITs.

The 5 largest S-REITs based on their weightage in the Straits Times Index (STI) are:

  1. Capitaland Integrated Commercial Trust or CICT (SGX:C38U)
  2. Mapletree Pan Asia Commercial Trust or MPACT (SGX:N2IU)
  3. Ascendas REIT or A-REIT (SGX:A17U)
  4. Mapletree Logistics Trust or MLT (SGX:M44U)
  5. Mapletree Industrial Trust or MIT (SGX:ME8U)

The average dividend yield for these top 5 S-REITs is around 5%. Most investors in REITs are probably invested for the dividend.

Besides dividend yield though, investors should also be looking at a multitude of factors like price/NAV, gearing ratio, debt profile, strength of sponsor, market exposure, etc.

Good news is, there are many bloggers in Singapore covering S-REITs. REIT-TIREMENT blog compiles super useful data on S-REITs here.

REIT ETFs

There were 5 of REIT ETFs listed on our local exchange SGX as of June 2022, according to this article by Willie Keng from Dividend Titan on Dollars & Sense here. Here’s a snippet:

Source: Dollars and Sense, contributed by Dividend Titan

As you can tell from the table, the average dividend yield of SGX-listed REIT ETFs is slightly below 5%. Dividends for the CSOP iEdge S-REIT Leaders Index ETF (SGX:SRT/SRU) and UOB APAC Green REIT ETF (SGX:GRN/GRE) are projections, since both these REIT ETFs are so new.

Out of the 5 REIT ETFs, only the Lion-Phillip S-REIT ETF (SGX:CLR) and CSOP iEdge S-REIT Leaders Index ETF restrict their exposure to only S-REITs, i.e. SGX-listed REITs. The other 3 have exposure to REITs in other parts of Asia Pacific.

Bonus: Although not an ETF, Syfe REIT+ is another option to gain exposure to a basket of S-REITs. REIT+ actually tracks the same index as the CSOP iEdge S-REIT Leaders Index ETF, which is the SGX iEdge S-REIT Leaders index. REIT+ functions very similarly to a REIT ETF but the main difference is that you can only buy into REIT+ through Syfe Wealth platform, not on SGX. REIT+ dividend yield for 2021 was 4.8%, similar to other REIT ETFs.

Read also my review of Syfe REIT+ here.

Comparison

Dividend. Dividend yields appear to be pretty similar so other factors will come into play. Of course there might be S-REITs with higher dividend yields but nothing comes free and those might come with added risks.

Corporate actions. Investing directly in S-REITs brings several advantages, including receiving corporate actions, e.g. rights issues, and notices directly if your shares are held in CDP. For REIT ETFs, all these corporate actions are managed by the ETF so you won’t be bothered. Getting these information directly gives you more time to make a decision and reduces the chances of missing the deadlines.

Fees. REIT ETFs also come with additional management fees encompassed in the expense ratio. For the 5 REIT ETFs, the expense ratio ranges from 0.45% to as much as 0.95%. In contrast, there are no ongoing costs for investing in individual REITs.

Performance. One of the most important considerations to me is the performance of S-REITs vs REIT ETFs. Dr Wealth did a comparison on this back in July 2021 and found that a DIY portfolio of S-REITs actually outperformed the Lion-Philip S-REIT ETF (SGX:CLR) over the 3-year period studied. Read S-REITs Portfolio Performance: DIY versus ETF here. Similarly, when I did a comparison of CLR vs top S-REITs (see chart below), indeed CLR (dark blue line) underperformed.

Source: Yahoo Finance

My Thoughts

My main gripe about investing in individual S-REITs has to be the rights issues. I find it annoying to be almost forced to fork out more capital just to avoid being diluted. Yes, these rights can be sold but I think most of the time investors might be worse off by doing so (correct me if I’m wrong).

Although dividend yields are pretty similar between top S-REITs and REIT ETFs, the top S-REITs in general seem to have outperformed REIT ETFs (represented by CLR) in the past. Usual caveat is that past performance is not a guarantee of future performance.

However, investing in individual S-REITs might involve a lot of research just to avoid bad REITs. My worst S-REIT investment was First REIT (SGX:AW9U) which lost me a lot of money. That said, the increased effort might be worth the better performance vs REIT ETFs.

Also, my track record with picking individual S-REITs has been patchy. I’ve let go of underperforming S-REITs often at a loss, including First REIT, CICT, FHT and A-REIT. I’m left with the better performing ones FLCT and ART.

My original intention was to move most of my REIT exposure to Syfe REIT+ or an equivalent REIT ETF in my drive towards passive and automated investing. I can automate monthly investments into REIT+, removing any need for manual intervention from me (subject to my emotions and thus open to mistakes).

After looking at the data however, I’d prefer not to be fully invested in just REIT+ or REIT ETF and have some exposure to individual S-REITs too. That said, with my mixed track record in picking S-REITs, I’ll probably just stick with my existing S-REITs and maybe 1 or 2 of the top few S-REITs.

Do you prefer to invest in individual S-REITs or Singapore REIT ETFs, and why?

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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