I have always had a special interest in REITs. Singapore REITs, in particular. I don’t know. Maybe it is because of innate desire to own properties.
There has been an increasing number of blogs which have showered attention on REITs, and I am really thankful for these talented authors whom I have learnt a lot from.
Kyith from Investment Moats has plenty of good posts. I’m particularly grateful for his Singapore Dividend Stock Tracker with all the REITs included. S-REITs System Investor has pretty detailed (and long) reads which have accompanied me on my way to work.
To be honest, I’m not exactly a numbers guy. I mean, I do my fair share of homework and decide whether or not to invest in a REIT after going through the figures, but I’m never able to churn out a detailed report or analysis for you. Don’t get me wrong, numbers are incredibly important – I think of them as my safety net.
My preferred REITs have always been in the retail sector for their defensive nature. Health-care REITs, while defensive in nature as well, are “expensive” and the yield is too low for my liking. The safer it is, the lower the yield, they say?
Take A Walk, Shall We?
Most importantly, when I invest in REITs, I don’t think of them as merely stocks/shares/tickers/symbols. I would much prefer to think of it as owning a business. One point that seldom gets brought up is the opportunity to visit the properties that you own, or plan to own. Retail REITs have a massive advantage in the sense that you get to have a really good idea of what’s happening in your properties. Not exactly something you can do with office, industrial or hospitality REITs. One thing is for sure – you can analyse the heck out of the numbers but you know a mall is shit when you see one with your own eyes.
Have you seen Bugis+ recently? Do you still remember what a mess (and obviously the enormous hidden potential) Illuma used to be, before it was revamped?
Have you noticed the changes to Vivocity over the years? And on-going changes still in progress now? How does Vivocity on weekday nights compare to say, Suntec City?
How come Clementi Mall rocks but CityVibe (maybe some of you don’t even know its name) is kind of meh when both are so near the MRT station with enormous human traffic?
Numbers, while important, may not necessarily paint the full picture. Once in a while, I like to visit “my malls” to see how they are doing. This is also why I have a preference for REITs with the majority of their portfolio located in Singapore.
Budget Day REIT Boost
Not many bloggers have made reference to the REITs related news on Budget Day. Dividend Warrior, who’s made a comeback via Twitter, left a tweet. I’m glad to know that REITs are going to keep enjoying most of the concessions. Let the dividends flow!
REITs Margin Financing @ 2.88%
Trust the financial institutions to get creative with REITs. If there is money to be made, they will think of something. The below illustration is obtained from Maybank Kim Eng Website.
Assume you pledged a cash amount of S$10,000 to purchase S$35,000 worth of Interest Grade 1 REIT which is projected to offer dividend yield of 7% p.a.
Financing Cost = 2.88% x S$25,000 = S$720
Projected Dividend Income = 7% x S$35,000 = S$2,450
Net Cash Income =S$2,450-S$720=S$1,730
Net Annual Yield =17.30%
In this scenario, you would achieved a net annual yield of 17.30% p.a. on a REIT that pays a 7% dividend yield.
Hmm . Further down is the most important line of that entire page.
Please note that price movement and other costs such as brokerage fees have not been taken into account.
Great if price goes upwards! Without reading more, let me think of a doomsday scenario. Hiak.
So, I pledge $10K of my own money, borrow $25K, invest $35K. We reach the end of 1-year term and guess what? Mr. Market takes a little tumble. Since Maybank lent me $25K, they are gonna get back the $25K from me no matter what. If the price drops by 30%, my $35K is left with $25K. I pay back the bank, and I’m left with nothing.
Tread with caution. 水能載舟，亦能覆舟.
My random thoughts aside, if you have always wanted to get up to speed with REITs – all you need is a few hours with “Building Wealth Through REITs” by Bobby Jayaraman. Trust me, it will do you a world of good, especially when it is written with local SG context in mind.
More Than Index Investing
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