What are REITs?

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REIT is short for ‘real estate investment trust’. In Singapore, REITs are a type of professionally managed collective investment scheme which acquires, owns and finances income-generating real estate.

Because of the stable stream of contractual rents they collect from tenants and their requirement to distribute a minimum 90% of their earnings, REITs provide investors with a regular income stream. They also offer investors potential long-term capital appreciation and an affordable means of investing in a wide range of real estate assets.

For REITs listed in Singapore (called SREITs), at least 75% of their total assets must be invested in income-producing real estate. SREITs may also hold real estate in more than one asset class, and either in one country or multiple countries. Increasingly, many SREITs have ventured abroad in search of higher risk-adjusted returns and greater diversification.

The table below shows the types of asset classes and geographical breakdown of SREITs.

Overview on the different REIT sectors and Geographical Breakdown of S-REITs.

Since the first SREIT listing in 2002, Singapore has transformed into a global REIT hub with 43 REITs and property trusts, boasting an estimated market capitalisation of S$111 billion as at May 31, 2022. Out of the 43, more than two-fifths are offshore REITs with 100% of their properties outside of Singapore, and only ~10% hold 100% Singapore assets.

 
 

In the next article, we will share some popular reasons why people invest in REITs as well as things to note when doing so. Stay tuned!

 

Sources:
SGX Research, “Chartbook: SREITs & Property Trusts“, 12 May 2022
MoneySense.gov.sg, “Understanding real estate investment trusts (REITS)”, 29 Oct 2018
‘Reits to Riches’ by Tam Ging Wien, 2017

 

Disclaimer: This article is for informational purposes only and shall not be construed as financial advice or an offer, invitation or solicitation of any offer to purchase or subscribe for any securities of Manulife US REIT in Singapore or any other jurisdiction nor should it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. You should always do your due diligence and seek professional advice before making any investment decisions. None of the information presented are intended to form the basis for any investment decision, and no specific recommendations are intended.

 

This article first ran on Manulife US REIT’s thought leadership column, Viewpoints, which publishes regular content on the U.S. economy and the office sector. Follow MUST on LinkedIn for all the latest updates!

 

Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of 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, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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Money & Me: How will Rising Inflation Rates impact REITs?

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18 July 2022

Money and Me: REIT picking in an inflationary environment

For the first half of 2022, the iEdge S-Reit Index has displayed strong resilience, generating flat total returns. In fact during the period, the S-Reits and property trusts sector in Singapore saw S$359 million of net institutional outflows and S$447 million of net retail inflows. Kenny Loh, REIT Specialist and Independent Financial Advisor joins Melissa Hyak on Money and Me as they discuss his 2H2022 outlook for Singapore REITs and what investors should know when REIT picking in this inflationary environment.

Timestamps

0:18 Intro

1:09 2nd Half 2022 Outlook

1:25 How has the S-REIT market fared so far this year?

2:59 Overview on last few years’ S-REIT historical performance: we are not at pre-COVID levels yet

4:06 How would you rank each REIT sectors? (Hospitality, Industrial, Retail etc.): Hospitality sector is the only sector with the most gains this year

5:21 Why is the Data Centers’ sector not performing well?

7:28 Do you still see the Hospitality sector performing well in 2H 2022? What other sectors do you see performing well?

9:11 Surviving the recession: What REIT sectors do you think are more resilient during the downturn?

11:58 Kenny’s tips on selecting the correct REITs to invest

  • Basic 3 Ratios: DPU Yield, Gearing Ratio, Price/NAV value
  • Recovery Ratios: Occupancy Rate, WALE, Property Yield
  • Debt Management: Cost of Debt, % of hedged interest rate, ICR, WADM, % Unsecured Borrowings
  • Red Flags to look out for

15:07 Outro

Listen to his previous market outlook interviews here:

2022

2021

2020

 

Kenny Loh is an Associate Wealth Advisory Director and REITs Specialist of 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, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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REITs that may be most impacted by Interest Rate Hikes

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The US Fed raised interest rates by 75 basis points on June 15, 2022, which is the biggest hike in 28 years. Coupled with post-pandemic recovery, this raises the question: How will REITs be impacted by the Interest Rate Hike? This will depend on the REIT, and many factors, not limiting but including:

  • REIT Sector (Retail, Office, Industrial etc.)
  • Sponsor of REIT (Stronger sponsors tend to attain better refinancing deals)
  • Market Capitalization (The bigger the REIT, generally the more resilient its portfolio)
  • Historical performance
  • Debt Maturity Length (Weighted Average)
  • Cost of Debt (Weighted Average)
  • Gearing Ratio
  • % of Fixed Rate Debt

 

Fundamentals: Sector, Sponsor and Market Capitalisation


Generally, by combining the market capitalisation, gearing ratio, debt maturity profile and all-in interest cost, these can give investors insights on how big the interest rate hike impacts the future DPU of REITs.

In the bubble chart below, REITs with short WADM would have to refinance the debt at the highest interest rate and that will further compress the spread of DPU yield and cost of debt.

The most risky combination would be high gearing and short WADM as the REITs would probably face challenges to keep the cost of debt manageable during the refinancing exercise, as the credit rating may be downgraded due to a weaker balance sheet. The reputation of the sponsor and its market capitalisation would be very crucial at this juncture. 

 

Legend

x-axis: Weighted Average Debt Maturity (Years)

y-axis: Weighted Average Cost of Debt (Years)

Bubble Size: Gearing Ratio (The bigger the bubble the higher the gearing ratio, in green) and Market Cap (in yellow)

For comparison, Digital Core REIT (26.0%) and ARAHT (44.9%).

Bubble Chart of Cost of Debt vs WADM (Years). Size of bubble represents Gearing Ratio
Bubble Chart of Cost of Debt vs WADM (Years). Size of bubble represents Market Cap

If you want to learn about REITs more in depth, I am conducting an upcoming REIT course, where I will explain on how these ratios (Cost of Debt, WADM and Gearing) can affect its performance during Interest Rate Hikes, as well as many other factors (macro and micro) and financial ratios that can affect a REIT’s performance. You’ll receive student notes (over 300 slides long) and knowledge on all you need to know about investing in REITs (and how to get started).

 

Upcoming REIT Course


I will be conducting my next REIT course on the 16th and 23rd July 2022. It is a 2-day course where you will learn everything you need to learn about REITs for investing. I only conduct this course every quarter, so do take a look below. For a limited time only, the course fee is subsidized to cost $200 (above 40y/o) or $600 (below 40y/o)*. Take advantage of the IBF subsidy while it is still available.

You can register by clicking the link here: Building a Diversified REIT Portfolio – SGX Academy

Registration will close on 11th July, 2022.

Kenny Loh is an Associate Wealth Advisory Director  and REITs Specialist of 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, Digital Assets and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Symposium and Invest Fair.  You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

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