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The yield of a reit with average leasehold of 40 years is different in quality from one with an average leasehold of 80 years even if all else equal. You probably should lop a percentage point off the industrial reits and some of the others for that reason alone (which begs the question of why Saizen is in the 7% league with its freehold property but that's another story).
While it is true that Reits historically yield 200-300bp above 10Y government bonds in many countries, this is an abnormal time. People still fear the return of the worse days of the GFC most likely. Trading volumes in SGX are pretty low.
However, it might be true that on a relative basis, DBS (for example) is underpriced compared with say FCT. If one had the ability to hold low cost, long term shorts, one might be tempted to do relative value trading (shorting one and buying the other).
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Besides the yield being unattractive, why is investing REITs not a good idea?
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06-09-2012, 08:59 PM
(This post was last modified: 06-09-2012, 09:03 PM by d.o.g..)
tanjm Wrote:If one had the ability to hold low cost, long term shorts, one might be tempted to do relative value trading (shorting one and buying the other).
During 2007, at my old firm, we could borrow CMT scrip from Goldman Sachs for only 1% per year. Very cheap, as CMT was widely held and highly regarded despite yielding only about 3%. We know what happened after that. Sadly, I do not run as much AUM today, so Goldman Sachs won't return my call.
(06-09-2012, 08:57 PM)changwk Wrote: Besides the yield being unattractive, why is investing REITs not a good idea?
Read this thread:
http://www.valuebuddies.com/thread-2346.html
There are some discussions in it about the issues behind investing in REITs.
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I do not give stock tips. So please do not ask, because you shall not receive.
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nowsadays reits not very good yield, I have non-reit stock giving 10%, lately I found another one potential 11%. Look harder now can find good yield stocks.
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(06-09-2012, 08:57 PM)changwk Wrote: Besides the yield being unattractive, why is investing REITs not a good idea?
Since all Reits have to give out 90% of earnings, that means they have very little money for acquisition unless they do more placement or more loan... vicious cycle and i cannot see the growth in the future. Like a person who keep on maxing out his credit card and e problem only surface when all his credit card has been max out!
I cannot take it when i reach 55 and they come to me telling me they need to do placement be it at a cheaper price!
You will start to see the damage when interest rate rise which make their borrowing cost more expensive.
The thing about karma, It always comes around and bite you when you least expected.
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AS interest rate rises, the market will most probably price the REITS accordingly in order to maintain more or less the same dividend yield; If everything remains equal. This is the time that you can see AH KONG's sponsored Reits most probably still can borrow funds from the Market one way or another. The recent GFC was a good example.
i understand some people never can accept REITS just like i can not accept insurance annuity or CPF LIFE.
But if a financial product is unable to benefit or suit some of the people, it will soon "disappear"
i think the same with insurance annuity.
We all have our own likings or preferences.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.