Replies to Unanswered Questions for REITs Symposium Panel

This article appears on Inside Invest.

https://www.insideinvest.com.sg/investing-trading/2019/05/27/replies-to-unanswered-questions-for-reits-symposium-panel/

Both of the panel discussions at REITs Symposium 2019 were so well-received that many of the good questions sent in by the audience had to be sacrificed due to time constraints.

In appreciation of your overwhelming support, however, we picked up some of your unanswered questions and reached out to Kenny Loh, one of our invited panellists of the day to share his views with us. Enjoy!

 

What drives a REIT’s long-term price appreciation? Increased capital inflows (investor interests) or appreciation of its underlying assets?

The share price of a REIT is driven by both the increase in DPU and also the appreciation of the NAV. The value of the property and rental income will go up in the long term because REIT investment is inflation hedged, as long as the REIT is well managed.

 

Properties for older REITs are ageing. Moving forward, will more money be required to upkeep properties, thus reducing distributions to unit holders?

It is true that REITs need to spend more maintenance costs to upkeep the aging properties. However, a good REIT manager has the options to do AEI to revitalise the building or sell the older building away and replace it with a newer one. All these actions may help the REIT to enhance its DPU.

 

Should we avoid REIT ETF because of the tax issues it attracts, in contrast to holding pure REITs?

Tax concessions have been extended to REIT ETFs, ensuring parity in tax treatments between investing in individual S-REITs and REIT ETFs. https://www.businesstimes.com.sg/stocks/singapore-budget-2018/singapore-budget-2018-reit-etfs-to-enjoy-tax-transparency

 

What are the key risks of investing in a REIT?

REIT is sensitive to economic cycles and interest cycle as the underlying asset is real estate. Real estate has its own investment cycle. Investors should not put 100% investment in real estate sectors or REITs. It is advisable for investors to diversify their investments into different asset classes with minimal correlation.

 

How to avoid value traps in REITs?

Investors should not make investment decisions purely by looking at the numbers. Qualitative analysis, Macro Economy Analysis and Risk Assessment are important analytical steps to avoid value traps.

 

What are some of the red flags that we, as retail investors should look out for when we do our homework/analysis on the suitable REITs to buy/hold?

Retail investors are always dependent on the free information available on the internet for research. Those data or news are lagging or old news. Investors need to do more qualitative analysis instead of focusing too much on the financial numbers which can be subjected to financial engineering. Most retail investors cannot differentiate between fact, opinion, noise or rumours in their analysis. The more they read, the more they are confused.

 

Given that REITs do have many restrictions, e.g.: 90% pay-out, 45% gearing and are relatively secured, do you advise using leverage through margin financing to enhance yield?

Leverage if used correctly can enhance the return. Vice versa, investors will face huge financial burden due to margin call when used wrongly. It is very important for investors to seek qualified and unbiased professional advice which is free from conflict of interest before doing any margin financing.

 

Kenny Loh is a Senior Consultant and REITs Specialist of a Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER. He has won multiple awards in financial planning and investment planning.

Singapore REIT Bubble Charts June 2019

Bubble charts derived from June 3, 2019 Singapore REITs Fundamental Comparison Table. No significant changes compared to last Bubble Charts.

(1) Big cap REIT remains expensive and value picks remains at small and medium cap REIT. Some small cap REITs start to move. Note: Distribution yield is lagging.

(2) There are no significant changes in gearing ratio.

These Bubble Charts are used to show the “relative” position compare to other Singapore REITs.

Two visual bubble charts to pick and avoid:

  1. Undervalue Singapore REITs with High Distribution Yield** (Value Pick)
  2. Overvalue Singapore REITs with High Gearing Ratio (Risk Avoidance)

** Distribution Yield are lagging.

Compared to previous Singapore REIT Bubble Charts here.

 

Disclaimer: The analysis is for Author own use and NOT to be used as Buy / Sell recommendation. Get a proper training on “How to use this Singapore REIT Bubble Charts?” here.

 

Next REIT class is on June 29, 2019 (Saturday), you can register here: Singapore REIT Investing Course

https://www.eventbrite.sg/e/reits-programme-by-kenny-loh-tickets-40049138050?discount=mystocksinvesting

Very limited seats left!

 

I shared the bubble charts in the REITs Symposium 2019 to a full crowd of investors. It is recommended you learn how to use bubble charts to spot buying opportunities and also avoid making mistakes.

 

Check below on other events:

http://mystocksinvesting.com/course/singapore-reits-investing/REITs Investing Course 

http://mystocksinvesting.com/course/private-portfolio-review/REITs Portfolio Advisory 

http://mystocksinvesting.com/events/

Retirement Planning: What Are the First Steps?

When you’re new to investing and retirement planning, it’s difficult to know what the first steps should be.

Royalty Free Photo

In this article, we delve into different aspects of determining how to proceed towards a healthy and prosperous retirement.

When Do You Want to Retire?

Everyone is different when it comes to retirement.

Some people wish to retire as soon as possible. They think that they have sufficient money and enough hobbies to keep them busy. Many are type-A personalities, which is how they got there in the first place. This makes it especially difficult to go from hyperactivity to minimal activity.

The rest of us are looking to retire at a traditional retirement age (65) or something close to it. The age is important because when needing to make your investments last longer, less should be withdrawn each year to avoid running out of money.

What Determines How Early You Can Retire?

It’s often thought that a higher income means you can retire sooner, and a lower income means it’ll happen much later. That’s only partly true. There are plenty of six-figure earners who still live paycheck to paycheck and rely on credit cards to survive a job loss.

It’s useful to appreciate that the average American has less than $1,000 in their checking account and most carry some form of consumer debt too. Having money to retire without a complete reliance on social security is unusual.

What determines how early you can retire is the savings rate as compared to what you spend (and also what you’ll be spending in retirement too).

For instance, when earning $59,000 (close to the average household income in the U.S.), how much you spend makes a huge difference. If you’re living in a low cost of living area, then it might be possible to get by on $2,000 monthly if you’re frugal. That leaves around 50% remaining to save (depending on your tax burden). Every year, you’ll be saving a year’s worth of future expenses. This puts you in a good position for the future.

Do You Want to Semi-Retire Instead?

One way to make retirement come sooner is to semi-retire.

Some people find it difficult to hold onto their job when they reach their 40s and 50s. Moving to a different, slower paced profession or switching to a role that just covers your expenses allows your retirement savings to grow on their own, untouched even when you are not adding to them.

This is known as BaristaFIRE, named after Starbucks workers. However, it’s possible to do any kind of work to cover your expenses while your nest egg grows. It’s not uncommon to find semi-retired people switching to freelancing or business consulting to keep busy.

How Much Is Needed to Retire?

Based on the Trinity Study and subsequent improvements, it was found that a 60/40 U.S. stocks and bonds portfolio mix lasted 30 years with annual inflation adjustments over every period studied during the past century.

Usually, 25 times the annual spending is required to retire but it depends on your expected investment returns, investment fees, tax rate, and how long you’ll need the portfolio to last.

To determine how much you’ll need, ask a qualified financial advisor for advice. Minneapolis financial planning is available from Berger Financial Group to figure out a precise retirement plan that will suit your needs.

Don’t be worried about taking the first steps to financial freedom. The sooner you get started, the easier it’ll be.