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

Investment Coach & REITs Strategist

Kenny Loh is among the pioneers of financial bloggers in Singapore. Since 2009, he has been blogging and reaches 19 thousand unique monthly visitors from 110 countries now.

He is especially passionate about REITs because of their simple business model and ability to generate regular passive income for investors. Over the years, he has developed a simple and effective method to analyse any REIT in less than 7 minutes, and to time the REITs market in just 3 seconds!

As a renowned investment coach, Kenny is helping and training retail investors on how to generate passive income to achieve financial freedom through investing. He was featured in medias such as AsiaOne and The New Paper, for his opinions about profitable investment strategies, and is a sought-after speaker as well in events conducted by SGX, CIMB Securities, CityIndex, Online Traders Club and many others.

Kenny specialises in REITs to collect regular dividends, and Real Estate Investing where he helps his local and overseas clients source and invest in high-yield under-value commercial and industrial properties in Singapore to collect regular rental income.

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