$$$ KPO and CZM $$$: 3rd REIT ETF - Lion-Phillip S-REIT ETF

Saturday, September 30, 2017

3rd REIT ETF - Lion-Phillip S-REIT ETF

[This is outdated due to Singapore Budget 2018 - Take a look at this post (New Singapore Budget, New REIT Strategy!) instead ]

KPO and CZM are back from our long 2 weeks holiday and we missed the APAC Realty IPO! I can only console ourselves that we have not been very lucky with IPOs so we will most likely waste the $2...

On the bright side, a 3rd REIT ETF - Lion-Phillip S-REIT ETF will be listed on SGX. The main difference is that the REITs in the ETF are all from SGX. The ETF attempts to replicate the Morningstar Singapore REIT Yield Focus Index (click on "Equity" follow by "Dividend"). You can refer to the prospectus in MAS site for more information too.

Since this is not an IPO, one will not be able to apply through ATM or I-banking. It was stated in the prospectus that the issue price of each unit during the Initial Offer Period is S$1.000 and it will be listed on 30th October 2017. However, one has to apply for a minimum of 50,000 units through one of the participating dealers (Phillip Securities Pte Ltd, DBS Vickers Securities (Singapore) Pte Ltd, Commerzbank AG and UOB Kay Hian Pte Ltd) and the application fee is $450 instead of $2 >.<


The ETF comprises of 23 SGX REITs with different weighting. I extracted the dividend yield of each REIT according to reitdata.com and compute the estimated dividend yield based on their weighting to obtain an estimated dividend yield for the ETF - 5.82% 4.81% (after deducting off 17% corporate income tax). The ETF aims to distribute dividends semi-annually (which are not guaranteed).


The expense ratio for the ETF is currently unknown but the information on the various fees and charges were provided (at least 0.55%?).

We are definitely interested in this but since we cannot afford to apply for 50,000 units, we will probably buy it from the secondary market. Let's see how it goes!

Update on 01 October 2017:
As pointed out by ziyang and others in one of the FB group discussion, there are corporate income tax rate of 17% on the dividends for the ETF which will reduce the overall return significantly! We will probably give this a miss instead!

Update on 03 October 2017:
Confirm that my analysis is correct, after tax withholding/corporate income tax, the dividend yield would be around a high 4%+!


Health - KPO Needs to Lose Weight
Date: 2017-09-30
Weight: 80.1 kg (put on more weight after the vacation!)
BMI: 26.7 

29 comments:

  1. welcome back .. welcome back KPO.

    Now there's another ETF for REITS.

    ReplyDelete
    Replies
    1. Thanks sleepydevil. I will remind myself to welcome you back from Japan. Hahaha.

      Delete
  2. Taxable income distribution from Real Estate Investment Trusts (“REITs”) listed in Singapore derived by the Fund will generally be subject to tax withheld at source at the prevailing income tax rate, currently 17%.

    ReplyDelete
    Replies
    1. Hi ziyang,

      Thanks for pointing that out! I was informed by others in one of the FB groups too. The 17% withholding tax certainly makes it a lot less attractive.

      Delete
  3. This is the REIT ETF that was due for very long time. I expect at least a 5% dividnend yield after deducting 17% tax and expense ratio of 0.6%. This ETF in fact have quite a few advantages:

    (1) Dont need to bother with rights issues.
    (2) It is diversify, and the index will get rid of non-performing REIT.
    (3) It can form part of the index portfolio for those bogle heads investors. Imagine a portfolio consisting of - Vanguard Total World Index / STI ETF / REIT ETF / ABF Bond ETF. Just perform periodic re-balancing.
    (4)There is slight chance that the CPF may approved the ETF under the CPFIS scheme...

    ReplyDelete
    Replies
    1. Hi Terry,

      I do not see dividend yield being specified anywhere in the prospectus so I think it is safer not to "expect" anything.

      You are definitely right about the benefits of the ETF! The ETF is currently approved under SRS but not CPFIS - https://www.poems.com.sg/wp-content/uploads/2017/10/Lion-Phillip-S-REIT-ETF-Website-FAQs-Oct-2017.pdf

      Delete
  4. hi all, can i check. since the Reit is based in SG (SGX) how come there is still a tax withholding. thought that is usually for overseas?

    ReplyDelete
    Replies
    1. There is no tax for individual/retail investors but all along it is taxable for corporate (30%). ETF are somewhere in the middle..

      You can read this boring document from IRAS to understand more - https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/e-Tax_Guides/etaxguide_Income%20Tax%20Treatment%20of%20Real%20Estate%20Investment%20Trusts%20and%20Approved%20Sub-Trusts.pdf

      Delete
    2. hi KPO, thanks for the reply.
      so if for example i purchase any of the 2 current Reits ETF (Philips SGX APAC) & (Nikko AM), any dividends will also be subjected to 15% withholding tax?

      Delete
    3. I am also interested to know. Anyone has the answer?

      Delete
  5. Also, what are your thoughts on SGX S-REIT 20 Index (REIT2.SI) ?
    1) How is that different from Lion-Phillip S-REIT ETF
    2) Is (REIT2.SI) considered an ETF that can be purchased as well?

    ReplyDelete
    Replies
    1. Hi Marcus,

      Index cannot be purchased. One can only purchased ETF that replicate the index. The underlying REITs and how they allocate/select the REITS are different.

      Delete
    2. thanks KPO for the reply.

      Delete
  6. Anyone buying this ETF, the IPO is open to public for subscription? Contact the dealer's broker to subscribe. I'm using POEMS...min 1000 units at $1, placement fees is $10...

    I'm Sick and Tired of rights issue already, chiong ah

    ReplyDelete
    Replies
    1. Hi Terry,

      I can confirm that the dividends are subjected to tax withholding and the yield would be around 4%+. So I will definitely give it a miss!

      Delete
  7. what happens when there is a rights issue?

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    Replies
    1. Hi foolishchameleon,

      It was not stated in the prospectus but I would think that people investing in this ETF would not have to worry about it. The fund managers would probably take the necessary actions, hence the higher management fee (0.5% vs STI ETF 0.3%).

      Delete
  8. I have contacted Lion Capital and verifed on the Dividend Yield. Base on last 12 months - 5.8%. After 0.6 TER and 17% tax - the payout is approximate 4.8%. Bear in mind the 0.6 TER is cap for only first 2 years, it may increase...

    ReplyDelete
    Replies
    1. Hi Terry,

      Thanks for sharing the information!

      Delete
    2. Hi Terry,
      5.8%-0.6% TER = 5.2% -17% tax = 4.3% instead of 4.8%. Something wrong with the math?

      Delete
  9. Hi,

    Any idea if one were to buy individual REITs - would the 17% tax apply?

    Thanks for your blog, enjoy reading it :)

    ReplyDelete
    Replies
    1. Hi Gareth,

      Thanks for the compliment! Nope! The 17% tax is income tax payable by corporate. As an retail investor, one would not have to pay any tax on the REITs.

      Delete
    2. 5.8%-0.6% TER = 5.2% -17% tax = 4.3% instead of 4.8%. Something wrong with the math?

      Delete
    3. Hi Jordan,

      You might be right although the order matters too (5.8% * 83% - 0.6%) and the above are just an estimate. The important thing to note is that the corporate tax will lower the dividend yield significantly. Investors would be prepare to pay TER but not the corporate tax.

      Regardless, the dividend yield one should be expecting is between 4%-5%.

      Delete
  10. Replies
    1. Hi Unknown,

      Personally, I think it is not a good buy but it depends on how much hands on you want. Buying the REIT ETF would mean you dun have to deal with rights issue and all but you got to pay for the convenience...

      Delete
    2. KPO,

      Understand where u are coming from, thanks.

      Delete
  11. The 17% tax no longer applicable from middle of year 2018.

    ReplyDelete
    Replies
    1. Hi ziyang,

      You may want to read this article too - http://kpo-and-czm.blogspot.com/2018/02/new-singapore-budget-new-reit-strategy.html

      Delete