You will build a scorecard comparing two S-REITs on every metric from this module.
Darren was choosing between two S-REITs for a top-up. One had a distribution yield of 7%, the other 10%, and a friend told him the choice was obvious. Over lessons 5.1 to 5.4, Darren had collected the numbers a lender would ask for, and he wanted to see them side by side before he believed his friend.
This exercise builds that side-by-side view. It takes about thirty minutes for two REITs, and it pulls every lesson in the module into one table.
Choose two S-REITs. They can be in the same sub-sector, which makes the comparison sharper, or in different ones, which shows how the numbers vary across sectors. Module 6 explains those differences.
Make a table with one column for each REIT and three more columns: source and page, date of the figure, and your mark. Then add ten rows:
DPU trend over five years, distribution yield, gearing, interest coverage ratio, share of debt at fixed rates, debt due in the next two years as a share of total debt, WALE, occupancy, latest rental reversion, price to NAV
Every figure needs a source you could show someone else: the results presentation, annual report or SGXNet announcement, with its date and page. A figure without a source is a guess.
Use the latest results presentation for most rows, and the annual reports for the five-year DPU series. Lesson 5.1, DPU is the number that pays you, showed how to mark years with capital distributions or large unit issues. Lesson 5.2, Gearing, interest coverage and the debt profile, covered the debt rows. Lesson 5.3, WALE, occupancy and rental reversions, explained which version of WALE and occupancy to use, and lesson 5.4, NAV per unit and what price to NAV tells you, the last row.
Use the recurring DPU when you calculate yield, as in lesson 3.3. Where the two REITs report a figure differently, such as WALE by income for one and by space for the other, note it.
Here are two made-up REITs, so you can see what a completed scorecard looks like. Every figure is an example.
REIT A: DPU over five years of S$0.070, 0.072, 0.073, 0.071 and 0.074, so slowly rising, up about 5.7% over the period. Unit price S$1.05, giving a distribution yield of about 7.0%. Gearing 36%. ICR 4.2 times. 80% of debt at fixed rates. 15% of debt due in the next two years. WALE 3.5 years by income. Occupancy 97%. Latest reversion plus 4%. NAV S$1.10, so price to NAV about 0.95.
REIT B: DPU of S$0.090, 0.088, 0.082, 0.078 and 0.070, falling about 22% over the period. Unit price S$0.70, giving a yield of 10.0%. Gearing 44%. ICR 2.4 times. 55% fixed. 40% of debt due in the next two years. WALE 2.1 years. Occupancy 91%. Reversion minus 3%. NAV S$0.95, so price to NAV about 0.74.
For each row, mark one REIT as stronger, weaker or similar. Stronger means better for the distribution's chances of lasting.
In the example, REIT A is stronger on DPU trend, gearing, ICR, fixed-rate share, debt due soon, WALE, occupancy and reversion. REIT B has the higher yield and the deeper discount to NAV. On their own, those last two look attractive. Read with the rest of the table, they look like the market's verdict on the other eight rows: a falling DPU, less room under the debt limits, a lot of refinancing coming and weaker demand for its space.
That does not make REIT B a bad investment or REIT A a good one. It means the 10% has a cost attached, and the scorecard shows what the cost is. Lesson 3.4, Run the yield trap check on a high yielder, gives you the next step if a REIT looks like B.
Then write the one metric that worries you most for each. For REIT A, perhaps that the long WALE limits how fast it could raise rents, or simply that nothing stands out, which is worth recording too. For REIT B, the 40% of debt due within two years, because refinancing at higher rates would cut DPU further and the gearing leaves little room.
A finished scorecard has all ten rows filled for both REITs, a source, page and date beside every figure, a mark on every row, the one metric that worries you most for each REIT, and a paragraph comparing them in plain words. Someone reading it should understand the comparison without opening any of the reports.
Darren's real pair looked a lot like the example. He did not buy either that week, and when he came back to it, he started from the scorecard rather than the yield.
Pick your two REITs, pull the figures with their sources, and write your comparison last, after every row is marked.
Complete the REIT scorecard for two S-REITs with sources for every figure and a one-paragraph comparison.
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