The stock market dropped 1,175 points in a single day in early 2018, the largest single-day point decrease in the Dow’s 121-year history. The major reasons, according to analysts, were rising interest rates and the pace of the Federal Reserve’s short-term rate hikes. 3
While the dip has had an impact on real estate investments, with the FTSE NAREIT All Equity REIT Index dropping 2.9 percent, it is expected to be short-lived.
3 REITs march to the beat of their own drum as compared to the rest of the stock market. While the stock market is influenced by the business cycle and the rise and fall of economic production, REITs are primarily influenced by the real estate cycle.
Why are REITs dropping in value?
Rate hikes cause REITs to decline in value, but they swiftly rebound and outperform afterward. Fears of rate hikes have caused REITs to plummet again today, and the lower they fall, the more we purchase.
Why Singapore REITs are down?
The rental revenue of REITs will almost probably fall in the current situation caused by Covid-19. The hospitality trusts are the most vulnerable because to a dramatic drop in tourist numbers worldwide as practically every country is on lockdown. They will feel the pain right away.
Mall REITs with turnover rent agreements will be impacted as well, since their tenants’ revenue will drop dramatically, forcing them to provide rent subsidies. In the short term, office and industrial REITs with lengthier lease lock-ins (or WALEs) will do better, but as the economy declines, corporations will reduce their leasing demands, and rental rates will fall as well.
When earnings drop, so do asset values. When appraisers look at a property with a lower earning capacity, they will lower the price. This could force the REIT to sell assets or execute a rights issue in order to meet its gearing covenant or the MAS’ leverage ceiling (currently set at 45 percent debt-to-asset ratio).
Prices are pushed even lower in a dismal economic situation with low market sentiment, as many asset owners want to sell. In order to determine asset prices, valuers must compare similar transactions and reduce their valuations in lockstep.
All of this creates a vicious cycle that usually ends with a very dilutive rights offering at a cheap price to “save” the REIT.
As an investor, just when you think things couldn’t get much worse because you’re already losing money on the REIT’s stock, you get a capital call that demands you to pay additional money or risk being substantially diluted.
Why do REITs fail?
According to benchmarks, REITs have earned an average of 15% per year during the last 20 years. Due to investment biases and inadequate selection methods, REIT investors continue to fail.
Weak Growth
REITs that are publicly listed are required to pay out 90% of their profits in dividends to shareholders right away. This leaves little money to expand the portfolio by purchasing additional properties, which is what drives appreciation.
Private REITs are a good option if you enjoy the idea of REITs but want to get more than just dividends.
No Control Over Returns or Performance
Investors in direct real estate have a lot of control over their profits. They can identify properties with high cash flow, actively promote vacant rentals to renters, properly screen all applications, and use other property management best practices.
Investors in REITs, on the other hand, can only sell their shares if they are unhappy with the company’s performance. Some private REITs won’t even be able to do that, at least for the first several years.
Yield Taxed as Regular Income
Dividends are taxed at the (higher) regular income tax rate, despite the fact that profits on investments held longer than a year are taxed at the lower capital gains tax rate.
And because REITs provide a large portion of their returns in the form of dividends, investors may face a greater tax bill than they would with more appreciation-oriented assets.
Potential for High Risk and Fees
Just because an investment is regulated by the SEC does not mean it is low-risk. Before investing, do your homework and think about all aspects of the real estate market, including property valuations, interest rates, debt, geography, and changing tax regulations.
Fees should also be factored into the due diligence process. High management and transaction fees are charged by some REITs, resulting in smaller returns to shareholders. Those fees are frequently buried in the fine print of investment offerings, so be prepared to dig through the fine print to find out what they pay themselves for property management, acquisition fees, and so on.
Is it a good time to buy REITs Singapore?
With COVID-19 in place and REIT prices in most sectors declining, this appears to be a good moment to invest in REITs. Singapore REITs actually plunged 70.56 percent during the global financial crisis of 2008. So, if you’re eager to go into REITs today and watch your portfolio grow, you must also be willing to watch it shrink.
Time in the market, as with any investment, is preferable than timing the market. As a result, always prepare ahead and assure your ability to hold.
If you’re unfamiliar with REITs, REIT stands for Real Estate Investment Trust, and S-REIT stands for Singapore REITs.
A REIT is a type of real estate investment trust that pools money from investors to invest in a portfolio of income-producing real estate properties.
REITs vary from regular equities in Singapore since they have a special tax transparency treatment. To be eligible, Singapore REITs must pay out at least 90% of their taxable revenue to unitholders in the same year that the income is received.
Disclaimer: This list is by no means complete, and anyone considering investing should conduct their own research. Information is current as of September 9, 2020.
Which REIT is the best in Singapore?
It turns out that the best performers are the typical suspects. With an average annualised return of 16.7%, Mapletree Industrial Trust (SGX: ME8U) is at the top of the list.
The REIT was listed on the stock exchange in October 2010, with a real estate portfolio of 70 properties valued at S$2.1 billion.
Fast forward to present, and Mapletree Industrial has grown to 114 properties valued S$6.7 billion, with Mapletree Industrial also entering the fast-growing data centre industry in 2017.
Meanwhile, REITs such as Mapletree Logistics Trust (SGX: M44U), Parkway Life REIT (SGX: C2PU), and Ascendas India Trust (SGX: CY6U) have benefited from holding high-quality assets and operating in markets with strong demand tailwinds.
Are SG REITs safe?
With some careful preparation and research, it is possible to benefit handsomely from the profitable business of property ownership while avoiding some of the hazards that come with it.
REITs in Singapore – A REIT is a trust founded with the sole goal of raising cash to purchase real estate assets. These properties’ rental income is subsequently allocated to unitholders.
The Monetary Authority of Singapore regulates and monitors Singapore’s REITs, often known as S-REITs (MAS).
An S-REIT must distribute 90 percent of its taxable revenue to unitholders, which is one of the most crucial laws to observe. In addition, REIT unitholders are entitled to capital gains on properties purchased by the REITs.
The S-REIT market has risen considerably since its inception in 2002. It has now reached a point where it is competitive with other REIT markets in the region.
The S-REIT market is currently half the size of the Japanese and Australian markets and double the size of the REIT market in Hong Kong, with a market capitalization of US$48 billion.
S-REITs’ Performance – The SGX S-REIT 20 Index is maintained by the Singapore Exchange. The market capitalization of its 20 constituents totals $52 billion.
The SGX S-REIT 20 achieved a total return of 2% in the month to date, according to data released by the Singapore Exchange (data as of 22 March 2016). In comparison, the Bloomberg Asia REIT Index earned 0.5 percent in SGD terms over the same time period.
The index has maintained a dividend yield of 6.3 percent, compared to 4.5 percent for the Bloomberg Index.
Several individual S-REITs performed better than the SGX S-REIT 20 Index, which yielded 6.3 percent. Cache Logistics Trust, an industrial REIT with a market cap of $0.8 billion, with a yield of 10.3 percent.
The OUE Hospitality Trust, which focuses on the hotels and resorts industry and has a market capitalization of $1.2 billion, yielded 9.7%.
S-REITs with high performance – CapitaLand Mall Trust, the largest S-REIT with a market cap of $7.7 billion, yielded 5.4 percent.
CapitaLand Mall Trust announced significant growth in its performance for the quarter ended March 31, 2016. The $179.8 million in gross revenue was up from $167.35 million the previous year. The amount of money distributed to unitholders increased from $92.86 million to $96.75 million.
Mapletree Industrial Trust has been performing exceptionally well. Over the last three years, it has delivered a total return of 42 percent. Since its IPO in 2010, it has done well for its unitholders.
One of its strongest assets is its well-diversified portfolio, which includes properties in the wholesale, retail, manufacturing, and trade sectors.
Another S-REIT with a strong track record is Mapletree Commercial Trust. It has outperformed many of its competitors with a three-year return of 23.7 percent and a dividend yield of 5.7 percent.
However, not every S-REIT has performed well. A cursory peek at the SGX statistics will reveal this.
While identifying high-yielding S-REITs is certainly conceivable, a solution for retail investors who do not have the time or willingness to research each S-performance REIT’s is in the works.
Do REITs do well during recession?
It’s crucial to remember that nothing can fully protect you against a recession. Any venture has weaknesses and hazards, and each economic downturn presents new obstacles.
While no recession is the same as the last, there are some real estate sectors that are more robust during a downturn. Real estate investments that meet people’s basic requirements, such as housing and agriculture, or that provide important services for economic activity, such as data processing, wireless communications, industrial processing and storage, or medical facilities, are more likely to weather the storm.
Investors can own and manage properties in any of the asset classes, but many prefer to invest in real estate investment trusts (REITs) (REIT). REITs can be a more affordable and accessible method for investors to enter into real estate while also obtaining access to institutional-quality investments in a diversified portfolio.
Data centers
We live in a data-driven technology era. Almost everything we do now requires data storage or processing, and the demand for data centers will only grow in the next decades as more technological or data-driven gadgets are released. During recessions, more people stay at home to watch TV, use their computers or smartphones, or, in the case of the recent coronavirus outbreak, work from home, increasing the need on data centers. According to the National Association of Real Estate Investment Trusts, there are currently five data center REITs to select from, with all five up 33.73 percent year to date (NAREIT).
Self-storage
Self-storage is widely regarded as a recession-proof asset type. As budgets tighten, some families downsize, relocating to other places to better their quality of life or pursue a new work opportunity, or downsizing by moving in with each other to save money. This indicates that there is a higher need for storage.
The COVID-19 pandemic, on the other hand, has had an unforeseen influence on the storage industry. While occupancy has remained high, eviction moratoriums and increasing cleaning and safety costs have resulted in lower revenues. According to NAREIT, self-storage REITs are down 3.51 percent year to date. However, this industry is expected to recover swiftly, particularly for companies like Public Storage (NYSE: PSA), the largest publicly traded self-storage REIT, which has a strong credit rating and a diverse portfolio.
Warehouse and distribution
E-commerce has altered the way our economy works. Demand for quality warehousing and distribution centers has soared as more consumers purchase from home than ever before. Oversupply of industrial space, particularly warehouse and distribution space, is a risk, given that this sector has been steadily growing for the past decade; however, as a result of COVID-19, it has already proven to be the most resilient asset class of all commercial real estate, making it an excellent choice for a recession-resistant investment. Prologis (NYSE: PLD), one of the major warehousing and logistics REITS, and Americold Realty Trust (NYSE: COLD), a REIT that specializes in cold storage facilities, have both proven to be quite durable in the present economic situation, with plenty of space for expansion.
Residential housing
People will always require housing. Residential housing, which can range from single-family homes to high-rise flats or retirement communities, fulfills a basic need that is necessary even in difficult economic times. During economic downturns, rents may stagnate and evictions or foreclosures may increase, but residential rentals are a relatively reliable and constant source of income. Despite the COVID-19 challenges, American Homes 4 Rent (NYSE: AMH), which specializes in single-family rental housing, and Equity Residential (NYSE: EQR), which specializes in urban high-rises in high-density areas, are two of the largest players in residential housing, both of which have maintained high occupancy and collection rates.
Agriculture
Aside from housing, agriculture and food production are two additional critical services on which our country and the rest of the world rely. Our existing food system is primarily reliant on industrial agriculture, but more and more autonomous and regenerative agricultural projects are springing up, allowing for more crop diversification, increased productivity, and reduced economic and environmental risk.
Wireless communication
Wireless communication has grown into a giant sector, with American Tower (NYSE: AMT) and Crown Castle International (NYSE: CCI) being two of the world’s largest REITs. Cell tower REITs that provide telecommunication services are an important part of our world today, and while growth prospects can be difficult to come by, very good track records and rising demand make this a terrific real estate investment that will weather any economic downturn.
Medical facilities
Medical facilities, senior housing, hospitals, urgent care clinics, and surgery centers all provide a vital service that will always be in demand, even during economic downturns.
Retail centers
Before you abandon ship when you see this category, let me state unequivocally that retail is not dead, at least not in all forms. Grocery stores and other retail outlets that provide critical services and products will continue to be in demand, as they did during the last pandemic. The issue here is for retail REITs to invest in the vital service sector with such focus that other sectors such as tourism, restaurants, or general shopping and goods do not put the company or investment at risk.
Are REITs considered high risk?
Because REITs are listed on the stock market, they carry the same risks as equity investments. Outside impulses, underlying fundamentals, and a number of other market dynamics all influence real estate values. REITs, in turn, will reflect any downturn and the resulting pricing repercussions.
Although long-term returns on REITs can be substantial, there have been times when they have not. The price of shares in the iShares Dow Jones U.S. Real Estate ETF (IYR) plunged 72 percent from a peak of $91.42 to a low of $23.51 as the real estate bubble burst between early 2007 and early 2009.
Are REITs a safe haven?
On a cumulative basis, REITs have outperformed all major stock indices and have outperformed bonds during the broader stock market downturn of 2000 and so far in 2001.
REITs have a positive expected return even in a downturn, according to the analysis, and have a low cross correlation with domestic, international, and technology equities, as well as domestic bond markets. Investors that hold REITs in a mixed asset portfolio can significantly improve their portfolio’s risk-return characteristics.
How do REITs do during a recession?
Parts of the real estate industry may provide some protection against economic downturns. Even though the economy is still growing, the recovery from the pandemic is slowing, with investors worried about inflation risks and the chronic delta version of the coronavirus eroding and possibly reversing that progress. If cautious investors take defensive positions before economic cycles alter, they can be ahead of the game. Income-generating real estate investment trusts, which buy property, collect rent, and distribute at least 90% of their taxable income to shareholders, can be a good defensive investment. REITs are an excellent gauge for how REITs are performing since they produce consistent income through dividend payouts, which boost investment returns. Because their prices are unlikely to see substantial variations during an economic crisis, it’s preferable to concentrate on REITs in solid areas like storage, distribution, and data centers, as well as health care facilities. During more difficult economic circumstances, these seven REITs have the potential to offer favorable results.
