Investments can be generally graded on a scale from worst to great investments. There are good investments and there are better investments. REITs are generally perceived as an attractive investment option for yield-hungry investors. S-REITs in particular offer a few benefits for investors: high dividends, generally good geographical diversification and better performance versus SGX blue chips over the long term.
In addition, it is not surprising that with inflation headlining news all across the world, S-REITs appear to be positioned well to weather this storm, whether transitory or not. First, when we take a look at gearing ratios (the ratio of a REIT’s total debt to its total assets), all S-REITs fall way below the MAS-imposed rule of 50% with a few exceptional ones bordering 20%–30%. Also, interest coverage ratios appear very healthy except for a couple of REITs.
Whether in a low interest rate or high interest rate environment, it appears that REITs are the savvy investors best friends. Investors should be aware though, that as risk-free rates rise, some REITs could see their yields expand to maintain a yield spread. As such, unit prices could fall, or distributions would need to rise.