Passive Income From Industrial REITs
There are so many Singapore REITS on the SGX and it is a popular investment as it could provide investors with the regular passive income they want through attractive dividend yields. With over 30 REITs to choose from on the SGX, one of my favorite types of REITS is industrial REITs.
What are industrial REITs?
According to the Global Industry Classification Standard (GICS), industrial REITs is defined as the real estate investment trusts that acquire, own, develop, lease out and manage industrial properties like warehouses, logistics centres or factories. With the properties clustered at more remote parts of Singapore such as Tuas, Jurong, some might be built near ports and these buildings are often away from the city areas.
The industrial REITs on SGX are Ascendas REIT (A17U), AIMSAMP Cap REIT (O5RU), Cache Log Trust (K2LU), Mapletree Log Trust (M44U), Mapletree Industrial Trust (ME8U), Sabana REIT (M1GU), Soilbuild Biz REIT (SV3U) and lastly Viva Industrial Trust (T8B).
What’s good about investing in industrial REITs?
1) The plans of industrial REITs are more current with the economic changes.
As industrial properties can be built more easily than any other types of building (building an empty warehouse VS office), the development of the properties are more reponsive to any economic changes. Considering that building a warehouse would only require some walls and basic pillars as compared to laying of cables, piping etc when building an office, the entire cycle of developing an industrial property is significantly shorter.
2) The assets can be easily customized to suit various needs and demand.
As industrial properties are largely basic in their layouts and structures, they can be transformed into other types of properties like retail spaces or even offices. Think about your favourite cafes situated in the warehouse like Wheeler’s Yard, or warehouse transformed into office.
3) Industrial REITs usually have lower capital expenditure (CAPEX).
CAPEX is an amount that the company spends on assets. Unlike retail or commercial spaces, the assets that industrial REITs own need minimal renovations to enhance its aesthetics. With a lower expenses spent on CAPEX, the income distribution for the shareholders will be higher.
What are the returns of industrial REITS like?
By comparing the returns of industrial REITs with the Straits Time Index for the last 5 years, the average returns including the amount of dividends of the REITs are significantly higher than that of the market. Looking at the raw data set, it is obvious that most of the gains from industrial REITs come from the high dividend yields, averaging around 8.58% for the past 5 years.
What’s the market outlook for industrial REITs?
With the consumers moving away from physical stores to ecommerce rapidly, this shopping paradigm would directly be making an impact on the demand for warehouses. According to Channel News Asia, the Singapore ecommerce market will exceed $7 billion by 2025. That would definitely channel demand onto warehouse or logistics spaces. Therefore, industrial REITs are bound to be growing for at least the next 5 years.