Riskiest REITs based on their beta

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The Singapore stock exchange has many REITs to choose from and investors usually base their buying decision on dividend yields.


But how many have stopped to think of the risk of a REIT?

What is risk?

By risk, I mean how much the price of a REIT fluctuates. I.e. its volatility

In the finance world, the term beta is used to measure how volatile a stock is.

In this regard, volatility is synonymous with risk. Higher volatility = higher risk.

The market used in this context is the STI index. In other contexts, it can be used to mean the general market such as the S&P500 or Dow Jones.

A beta of 1 indicates that a stock, or REIT’s price moves lockstep with the market.

A beat of less than 1 means that the REIT is less volatile than the market.

For example, if a stock’s beta is 1.2, it is theoretically 20% more volatile than the market.

This stock is likely to outperform the market by 20% if the market rises, and underperform by 20% when the market falls.

Risk of STI REITs

The following chart from SGX Stock Facts lists out 33 REITs in their database (there are actually more but it isn’t on Stock Facts).

I compiled the list with their corresponding beta on a 5 year basis.

Also read: Capitaland acquires Main Airport Centre in Frankfurt, Germany

This means that the REIT’s and the STI’s past 5 years of price movement was used in the calculation of beta.

The REITs are listed from left to right by lowest to highest beta or least risky to most risky.

REIT 5y beta
SGX REITs 5 year beta from Stock Facts

Riskiest REITs

Save for BHG REIT, the other 2 China focused REITs are on the riskier end with Mapletree Greater China Commercial Trust and Capitaland Retail China Trust having betas of 0.78 and 0.73 respectively.

I think BHG is on the lower end because they have only been in existence slightly over 2 years, and the counter is slightly illiquid, hence there may have been some aberrations in the calculations.

Nevertheless, I think this suggests that REITs with overseas properties are riskier.

Least risky REITs

On the less risky end, I found it surprising that Capitaland Mall Trust is the second least risky after BHG REIT.

I would have thought that exposure to the fickleness of consumers would make the counter gyrate. Nevertheless, the numbers show that risk is low. I think this can be due to the ‘blue-chip’ status of the company and its parent, Capitaland.

SPH REIT has never made any acquisition since their listing in 2013 and is also considered  a low risk REIT.

Also read: 3 adventures Capitaland has been having in Vietnam in 2017

I think this is well deserved due to the tight range of between S$0.9 and S$1.1 that their share price trades between.

Beta of other stocks or asset classes

As a frame of reference, I show below the 5 year betas of stocks in other asset classes.

Banks/DBS: 0.79
Banks/DBS: 0.76
Banks/OCBC: 0.72
Capital goods/Jardine: 0.52
Capital goods/Keppel Corp: 0.73
Consumer services/Genting: 1.1
Consumer services/Mandarin Oriental: 0.74
Healthcare/Raffles Medical: 0.54
Telecom/Singtel: 0.64
Telecom/Starhub: 0.44
Utilities/Keppel infrastructure trust: 0.42
Beverages/Thai-Bev: 0.30
Real estate management/Hongkong Land: 0.84

Most 5 year betas are across the board, with the lowest being Thai Beverage at 0.3 and highest being Genting at 1.1.


The listed REITs also show betas in a similar range except that none of the REITs have betas more than 1.

Income boost by REITs

Even though some REITs are risky as indicated by a high beta, the inherent nature of REITs passing through at least 90% of their property income to shareholders means there will be some income buffer when stock prices fall.

Compared to other stocks such as banks, capital goods and healthcare which pay dividends of 2-4%, the support by REITs lend itself to being a very attractive asset class.

What does this mean?

With the above information, you no longer need to look simply at a REITs dividend yield in making your investment decision.

Supplement your REIT investment decision with their beta.

The lower the beta, the lower your risk (but of course also lower potential for huge returns).

The chart above is based on a 5 year stock price window, which implicitly assumes that you may want to hold the REIT over that period.

The beta would definitely change if calculated over a different time period such as 1 or 3 years. Nevertheless, I think this would give you a clear idea on how risky REITs are based on their beta/volatility.

Read also: Lippo mall, a REIT with an 8.2% dividend yield



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