Thought of the day

I thank whatever gods may be / For my unconquerable soul. / I am the master of my fate / I am the captain of my soul. ~William Ernest Henley, Invictus

Government's promises are like the Ringgit, they depreciate with time.

Monday, May 7, 2012

Invest in REITS

What is REITS?
Real Estate Investment Trusts (REITs) - pronounced as R-I-T-S, not R-A-I-D-S, are trusts that are set up specifically to invest in real estates. So, you're actually investing in a property management listed company, so to speak. REITs invest their capital into various types of real estates.

Type of REITS
The REITs in Singapore can be broadly classified into the following types [1]:
  1. Retail REITs - CapitaMall Trust, Fraser Centerpoint Trust, LippoMall (Indonesia Only)
  2. Residential REITs - Saizen REIT (Japan Only)
  3. Hospitality REITs - Ascott REIT, CDL Hospitality Trust
  4. Healthcare REITs - Parkway Life REIT, First REIT
  5. Office REITs - Frasers Commercial Trust, CapitaCommercial Trust, Keppel REIT
  6. Industrial REITs - Ascendas REITs, Cache Logistics Trust, Cambridge Industrial Trust, Mapletree Logistics Trust, Mapletree Industrial Trust, Sabana REIT.
  7. Hybrid REITs - Mapletree Commercial Trust, Starhill REIT, Suntec REIT
In summary, ranking by various qualities [1]:
  • Defensiveness (From Highest to Lowest) – Healthcare, Retail, Retail/Office Hybrid, Industrial, Office, Residential, Hospitality
  • Dividend Yields (From Highest to Lowest) – Hospitality, Residential, Office, Industrial, Retail/Office Hybrid, Retail, Healthcar
  • Weighted Average Lease Expiry (WALE) (From Highest to Lowest) – Healthcare, Industrial, Retail, Retail/Office Hybrid, Office, Residential, Hospitality
Why invest in REITS? [2]

Great way to diversify your portfolio.
REITs solely invest in real estates and make money from leases and other forms of rental income. Such income has a very low co-relation with economic cycles as compared to other industries. Thus, this is an alternative vehicle to build a source of relatively stable, regular income. A must for long term investors to diversify their investment portfolios.

Fixed income and capital appreciation.
The income earned from rent and leasing out of real estate assets is passed on to investors through dividends. Typical dividend yield for Malaysia and Singapore REITs counters are in the 6%-8% range on average. Moreover, any increase in the value of a REIT’s real estate investment portfolio or increase in distribution per unit (DPU) leads to an appreciation in the market value of the REIT. Stable.

Convenient way of investing in real estate
  1. Lower cost & Diversification: It will cost a bomb for retail investors to invest in real estates individually, and by doing so, it's like putting all your eggs in one basket. Via REITs, one is spoilt for the variety of real estates he/she can invest in at a lower cost.
  2. Liquidity: One can invest in REITs and pull out anytime by selling off their units in the market fast. Selling off a property takes months to complete.
  3. Professional Management: REITs have professional management teams to manage, maintain and upgrade the real estates, and also to collect rental incomes. Investors do not need to worry about late payments, plumbing problems...etc, and all the paperwork involved. 
How to invest in REITs?
Some pointers in assessing REITs [3]:
  1. Competent management.
  2. Ever increasing dividend payout.
  3. It should be actively acquiring new assets or upgrading their existing assets.
  4. The properties under management must be located at strategic location.
  5. It should have sufficient and variety of tenants.
  6. Must have promising long-term tenancies.
[1] Calvin Yeo, Making Passive Income,
[2] Stock Investing 101, "3 Reasons Why You Should Invest In REITs",
[3] Personal Finance Money Tip, "How to invest in REITs",

Disclaimer: This is a self-learning article for the author and the references are cited accordingly. This is not an invitation to buy or sell. I do not guarantee the accuracy or validity of the information above. Do your own due diligence before investing and invest at your own risk.

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