With more than millions of blogs around, this blog is not one of the large blogs around. Neither is it a "hi - bye" kind of blog. Each milestone is memorable and crossing 400,000 pageviews is memorable enough for me.
Thanks to all readers for supporting thus far.
What are REITs?
Real Estate Investment Trusts or REITs can be a corporation, business trust or association that acts as an investment agent that acquires or provides financing for the acquisition of real estate or real estate mortgages or even a combination of both. It basically combines the capital of many investors to purchase any form of income producing real estate. In most countries, REITs are often accorded special tax breaks where they are not required to pay any corporate income tax if it distributes the majority (usually 90% to 95%) of its taxable income to shareholders each year.
Unlike property stocks, REITs is akin to holding personal property where the taxation of income takes place at the investor level rather than at the company level. In certain countries, dividends or distributions are also not taxed. So there is an added advantage for investors to own it. REITs are usually traded just like any stock or share on the stock exchange. They are easily liquidated compared to owning a real property.
Different type of REITs
REITs can be classified as equity REITs, mortgage REITs or Hybrid REITs. Mortgage REITs are more common in the United States compared to the Asia Pacific region where most of the REITs are equity REITs.
Equity REITs invest in and own usually immovable properties with revenues and income derived mainly from the rental income of these properties. Most equity REITs are spun off by property developers who aim to free up capital for their core business of property developing which gives them a better return of investment compared to owning property just for rental yield of less than 10%.
Mortgage REITs invests in loans that are secured by real estate or mortgage backed securities. Their revenues and income are usually derived from the interest paid for the mortgage loans or the difference in rates at which they borrow and lend out money.
There are some REITs that are also a hybrid of both equity REITs and mortgage REITs.
Blessed Christmas to All Readers
Christmas is coming in exactly 3 days. And less we forget the true meaning about Christmas, it is not about the presents, or the good food that we fill our tummies with. Neither is it about the gatherings, or shopping for presents or whatever retailers will have you believe.
Christmas is to celebrate the birth of Jesus - the greatest gift to all mankind.
Hundreds of years before Jesus' birth, the prophet Isaiah said: "Therefore the Lord himself will give you a sign. Behold, the virgin shall conceive and bear a son, and shall call his name Immanuel."
I leave you with this beautiful rendition of Oh Come Oh Come Immanuel by the Franz Family. Enjoy and blessed Christmas to all readers.
Christmas is to celebrate the birth of Jesus - the greatest gift to all mankind.
Hundreds of years before Jesus' birth, the prophet Isaiah said: "Therefore the Lord himself will give you a sign. Behold, the virgin shall conceive and bear a son, and shall call his name Immanuel."
I leave you with this beautiful rendition of Oh Come Oh Come Immanuel by the Franz Family. Enjoy and blessed Christmas to all readers.
Jimmy Kimmel - Lie Detector
Funny video where Jimmy Kimmel hooks up kids to a "lie detector" machine. Just for laughs.
REITs Trading Below NAV (Net Asset Value)
Net Asset Value or NAV is one of the factors to consider when investing in REITs. The NAV is basically the sum of all the REITs' assets (usually property and cash) minus away its liabilities (e.g. bank loans). Investors often look at the price of the REIT and its NAV to see whether a bargain exists when a REIT is trading at significant discount to its NAV.
Should a REIT trade above NAV or below NAV?
A common argument is that REITs should actually trade above their NAV. Why so? There are a few reasons given:
Should a REIT trade above NAV or below NAV?
A common argument is that REITs should actually trade above their NAV. Why so? There are a few reasons given:
- A REIT is more liquid that a property itself. As such, a "premium" or value should be placed on this added liquidity as compared to a real property. An investor in a REIT can basically liquidate his holdings in the stock market as compared to holding a real property which requires time and effort to get rid of.
- Smaller upfront capital required as compared to a real property.
- Professional management without hassle of being a landlord yourself
- Divesification into various properties
- NAV was determined sometime back and it is likely that today's NAV of the property is higher
However, it is not uncommon to find certain REITs that actually trade at a discount to their NAV. Many reasons are given for this discount. The most common answer that links the reason for this discount is that of RISK. This could be due to:
- Foreign Exchange risk
- Drop in property value
- Potential drop in distributions
- Country Risk
- Uncertainty about the future outlook of the REIT
- NAV was determined sometime back and it is likely that today's NAV of the property is lower
Just a few years back, when the market sentiment was weaker, most Singapore REITs were trading at significant discount to their NAV. At the end of 2012, REITs that are trading at discount to their NAV are much fewer. These include Fortune REIT, Suntec REIT, Frasers Commerical Trust, Saizen, LippoMalls Indonesia Retail Trust, Ascott and Starhill Global.
Singapore REITs - History and Regulations
Singapore has probably done more than any other Asian country to grow and foster its Real Estate Investment Trust (REIT) market. Since the first REIT was listed till now in 2012, the number of listed REITs in Singapore has grown and looks set to surpass Japan for the top spot in terms of market capitalisation in the next 5 years. Its foundation was not without trouble though.
In the beginning....
The first REIT to be listed in Singapore did not take off. Its public offering took place in November 2001. The developer was Capitaland and the REIT was SingMall Property Trust. Offered at S$1.00 each with a forecasted earnings yield of 5.75% for 2002 and 6.05% for 2003, it was scrapped when the issue was only 80% subscribed. The cause for the weak market sentiment was probably due to the aftermath of Sept 2011 and the uncertainty that was around. Poor understanding of what a REIT was could also be a contributing factor.
A year later (July 2002), the original three major shopping centres/malls of Junction 8, Tampines Mall and Funan the IT Mall were repackaged into CapitaMall Trust. The yield offered was 7.1% this time and investors were hooked. This ushered in the start of the REIT market in Singapore.
The next few REITs to be listed on the Singapore stock exchange (SGX) were Ascendas REIT ( November 2002) and Fortune REIT (October 2003).
Today, there are around 20 REITs listed in Singapore covering various property types like commercial, residential, hospitality, hospitals, industrial, and retails. Many of these are also cross-border REITs and own properties outside of Singapore. These include CapitaRetail China Trust, First REIT, Frasers Commerical Trust (previously known as Allco REIT), Ascott REIT, LippoMall Indonesia Retail Trust, etc.
With many sponsors being developers too, it is highly likely that these sponsors will also inject future properties into the trusts already established.
Friendly Regulations played a part
Regulatory changes probably played an important role in fuelling investors' enthusiasm for REITs. Withholding tax was set at 10% while there was full tax exemption for local and foreign individual investors.
The gearing limit (i.e. amount of debt the REIT could raise), was also increase from 25% to 35% and went up to 60% (on the condition that the trust received a rating from a credit rating agency). Of course, some analysts have commented that the 60% gearing is not conditional on any rating the trust receives as long as a rating is obtained. Through borrowing, a trust could potentially fund new purchases using cheap debt while increasing the amount of distributions to unit holders. And that probably explains the acquisitions that followed for SREITs after the gearing level was increased.
REITs listed on SGX
Do note that some trusts are listed on the SGX too and these are not to be confused with REITs. REITs are required to pay out 90% of their profit as distribution to enjoy tax incentives. Trusts do not have to do that. So there is certainly less certainty on the distributions that one obtains from trusts as compared to a REIT.
Most of the REITs (if not all of them) are equity REITs in the sense that they hold real immovable properties unlike some of the mortgage REITs listed in the US stock exchange.
Here is the list of REITs listed on SGX:
In the beginning....
The first REIT to be listed in Singapore did not take off. Its public offering took place in November 2001. The developer was Capitaland and the REIT was SingMall Property Trust. Offered at S$1.00 each with a forecasted earnings yield of 5.75% for 2002 and 6.05% for 2003, it was scrapped when the issue was only 80% subscribed. The cause for the weak market sentiment was probably due to the aftermath of Sept 2011 and the uncertainty that was around. Poor understanding of what a REIT was could also be a contributing factor.
A year later (July 2002), the original three major shopping centres/malls of Junction 8, Tampines Mall and Funan the IT Mall were repackaged into CapitaMall Trust. The yield offered was 7.1% this time and investors were hooked. This ushered in the start of the REIT market in Singapore.
The next few REITs to be listed on the Singapore stock exchange (SGX) were Ascendas REIT ( November 2002) and Fortune REIT (October 2003).
Today, there are around 20 REITs listed in Singapore covering various property types like commercial, residential, hospitality, hospitals, industrial, and retails. Many of these are also cross-border REITs and own properties outside of Singapore. These include CapitaRetail China Trust, First REIT, Frasers Commerical Trust (previously known as Allco REIT), Ascott REIT, LippoMall Indonesia Retail Trust, etc.
With many sponsors being developers too, it is highly likely that these sponsors will also inject future properties into the trusts already established.
Friendly Regulations played a part
Regulatory changes probably played an important role in fuelling investors' enthusiasm for REITs. Withholding tax was set at 10% while there was full tax exemption for local and foreign individual investors.
The gearing limit (i.e. amount of debt the REIT could raise), was also increase from 25% to 35% and went up to 60% (on the condition that the trust received a rating from a credit rating agency). Of course, some analysts have commented that the 60% gearing is not conditional on any rating the trust receives as long as a rating is obtained. Through borrowing, a trust could potentially fund new purchases using cheap debt while increasing the amount of distributions to unit holders. And that probably explains the acquisitions that followed for SREITs after the gearing level was increased.
REITs listed on SGX
Do note that some trusts are listed on the SGX too and these are not to be confused with REITs. REITs are required to pay out 90% of their profit as distribution to enjoy tax incentives. Trusts do not have to do that. So there is certainly less certainty on the distributions that one obtains from trusts as compared to a REIT.
Most of the REITs (if not all of them) are equity REITs in the sense that they hold real immovable properties unlike some of the mortgage REITs listed in the US stock exchange.
Here is the list of REITs listed on SGX:
- CapitaMall Trust
- MapleTree Industrial
- Ascendas REIT
- CapitaCommerical
- Suntec REIT
- Mapletree Logistics
- Mapletree Commercial
- Saizen
- First REIT
- Cambridge REIT
- LippoMalls Indonesian Retail Trust
- Cache
- Starhill Global
- CapitaRetail China
- Sabana
- Ascott
- Fortune REIT (HK$)
- Frasers Centrepoint Trust
- Frasers Commercial Trust
- Keppel REIT
Dividends for November 2012
I have been doing a really bad job keeping records of dividends that I receive. Every month, I will receive 2 cheques from two of my monthly dividend paying stocks. And I have not developed the habit of banking those cheques in immediately. Sometimes, the cheques sit on my desk for days or weeks before they are dropped in at the bank.
The amount I get from those two cheques are aroudn $90 to $100.
During the month of November, I also got dividends from Thakral ($50) and Sabana ($46.80).
The amount I get from those two cheques are aroudn $90 to $100.
During the month of November, I also got dividends from Thakral ($50) and Sabana ($46.80).
CPF Board's Are You Ready? Instagram Contest
CPF Board started the Are You Ready? Initiative to get Singaporeans thinking about these important decisions in their lives. They are
- Manage your cash flow;
- Buy a house within your means;
- Take charge of your healthcare costs; and
- Secure your retirement.
The AYR concept revolves around using four simple checklists to measure your financial readiness. This year, CPF improved the checklists to include more resources.
In addition, CPF is running an Are You Ready? Instagram contest with an iPhone 5 and more than $2,000 shopping vouchers up for grabs.
It’s simple to join. Simply take photos of what best relates to ‘Cash Flow’, ‘Housing’, ‘Healthcare’ and ‘Retirement’, and tag them with your caption! The hashtags are
- #AYRcash
- #AYRhouse
- #AYRhealth
- #AYRretire
Click here to go to the campaign
Armour Residential REIT (ARR) dividends
Received a cheque for November's dividends from Armour Residential REIT (ARR). Total dividends was S$45.89 after accounting for 30% withholding tax as well as handling and GST charges. ARR has been paying me monthly dividends ever since I bought it. However, the stock has been quite volatile at times.