There are a few important factors that investors should look out for when deciding on a particular REIT. Basically the fundamental operation of a REIT is that the managers of a REIT will take loans or raise cash to buy assets, lease the assets and collect income from the assets. Then dividends are to be distributed after net of interest charges, management fees and some other fees. Therefore the most important consideration for a REIT is its debt profile. You wouldn’t want a REIT to have excessive debt as the interest charges can potentially lower dividend payout. The figure below is a debt profile summary of all the S-REIT.
Compiled by DBS Vickers
Gearing is a measure of how leveraged the REIT is. It is advisable to choose a REIT with satisfactory level of gearing. If you notice I use the word satisfactory instead of low as I believe, some amount of debt in any business can be made to good use. The level of gearing can be compared against other REITs in the same sector. Interest coverage ratio is an important number which measures income collected to interest charges. Ideally you want to have a high interest coverage ratio so that there is sufficient buffer should interest charges rise in the future, dividend payout will not be affected that much.
Then you might want to look at the debt maturity profile of the REIT. A good REIT should have their debt maturity dates to be equally and sufficiently spread. You wouldn’t want a REIT to have a bulk of their loans expiring in the same year.
I hope you have some ideas on what factors to look out for a REIT. Apart from the debt profile, you can also look out for dividend yield and discount of price to book value of the REIT as some of the factors in your decision making process. The table below gives a summary of comparison for S-REIT as compiled by DBS Vickers.
Compiled by DBS Vickers
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