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The catalyst for this blog is a comment from a viewer of my YouTube channel.
The viewer said:
"... older video says you did not lose playing reit. need your help man. it is starting to feel a bit strange already."
In reply to that, I said:
"I made a lot of money investing in REITs but that was during the 15 years when interest rates were almost zero. Things different already."
We must realize that things have changed.
I blogged about how I made more than $2 million investing for income and that was from passive income received alone.
Sunday, January 8, 2023
It did not include any capital gains made over the years.
I can safely say that more than half of that $2 million in passive income was from REITs.
If we take into account capital gains from voluntary and involuntary sale of REITs in those 15 years, I have made a lot more money from investing in REITs.
For an average Singaporean like me, that is a lot of money.
It has definitely helped me to achieve F.I.R.E. more comfortably.
However, like I said, things are different already.
In many blogs I published and videos I produced in the last year or so, I said as much.
Rapid and significant increases in interest rates have thrown a spanner in the works for REITs.
Indeed, they have had the same effect on all risk assets and not just REITs.
In an environment where risk free rate is 5% or more, Mr. Market is right to demand more from REITs.
This means yield has to expand, all else being equal.
I made videos on this and I am including them here for people who do not follow me on YouTube:
If a REIT was yielding 5% when risk free rate was almost zero, now, it should yield 10% or so in order to be attractive.
In Singapore, if we take the recent Singapore Savings Bond which offered 3.33% p.a. 10 year average yield, a REIT which offered 5% distribution yield in the past should offer 8.33% today to be attractive, all else being equal.
This is just something to bear in mind and might not be an ironclad rule to follow, for people who still believe in REITs as viable investments for income.
However, it is simply sensible to use this yardstick, I believe.
Anyway, I get the feeling that people are still not as demanding as they should logically be when investing in REITs today.
Many are investing with the idea that interest rates might be rapidly cut from 2H 2024.
Investors who only started investing during the years of very low interest rates might even think that interest rate cuts means a return to the post Global Financial Crisis low interest rate environment which lasted 15 years or so.
Investing in REITs today with such a belief could lead to disappointment.
Bearing this in mind, I also made a couple of videos on IREIT Global before:
Finally, AK is losing money investing in a REIT.
This might make some people cackle with glee.
To me, this is just another example that I am not always right.
It is only paper loss right now but who knows how things would pan out?
Of course, we must not forget that AK is also losing money in another REIT, CapitaLand China Trust.
Things are different now and this is why I have been saying that I am not adding to my investments in REITs in the current environment.
Why do DBS, OCBC and UOB together form more than 40% of my portfolio today?
If AK can talk to himself, so can you.
Bloggy Award
17 comments:
rate cuts from ECB are on the horizon apparently. hope that helps ireit global
Hi AK,
LT follower of your blog. Think you are a bit too hard on yourself for having a non performing REIT in portfolio. And IREIT is low now but really, we dont know the future.
Because i benefitted greatly from your blog, so i just want to say , cheer up ! I had many such lessons and maybe there will be more in the future as well . But i try to learn something from all these bad calls. So similarly , I will love to hear your thoughts maybe to see what you thought you could have been done better ? But please dont be too hard on yourself ! You are doing good and you have helped lots of folks like me as well. So cheer up and keep on doing the good work that you have been doing ! Even the best of us like WB have such days. The impt thing is we keep getting back up.
Cheers and wishing you well
Hi zhenling,
Crossing fingers but I won't hold my breath. ;p
Hi Small steps,
Thank you for the kind words. :D
Don't worry about me being too hard on myself.
I am just saying what is obvious and it is obvious that IREIT Global isn't the brightest investment in my portfolio. ;p
If anything, I am very forgiving towards myself and you might remember that I have said on many occasions that if I can be right 6 times out of 10 times, I am happy enough. ;)
Cannot make all the money in the world and cannot be right all the time.
I have accepted this a long time ago or I would have gone utterly insane by now.
Thanks again. :D
Is a good think that you have Banks to mitigate the reit impact. However this could also implied the risk of being in market. If you have not be large in banks the fall could be damaging. Always reminded myself in 3D shooting game, we need to keep moving constantly and not be sitting duck.
Hi Cory,
I like to think that I have been nimble enough to do reasonably well.
For sure, the only constant is change. :)
Hi AK,
I got layoff in May..
Feel disappointed but moved on.
However, this has impact in my recent stock purchase behavior...太过小心，船头怕蛇，船尾怕鬼。。。😅
Need time to adjust...
Hi Kunio,
I am so sorry to hear that. :(
Hope you recover soon. 100%! :)
Nothing wrong with being more careful but it is totally wrong to be reckless! ;)
IREIT seems to heading into more problems with DRV's tenancy up at end of year.
And DRV is not extending the tenancy.
As at 31 March 2024, DRV’s lease at the Property contributed approximately 20% of IREIT’s total
gross rental income and DRV was IREIT’s top tenant (by rental income).
Are you worried by this event?
Seeing that IREIT will lose another major tenant!
Hi AK,
I have got some banks and some reits in my portfolio. Currently iReits is not looking good and i am wondering what i should do with it.
The price has been falling with no bottom in sight. With the recently news, IREIT Global Group says a key tenant Deutsche Rentenversicherung Bund (DRV), which contributes around 20% of its total gross rental income, will not be extending its lease which is expiring on Dec 31, is not helping the stock price.
However, the good thing about it is that there is no debt renewal till 2026 and hopefully the i/r is lower than current. The PB is around 0.5 with the dividend around 10% currently (we have to note that it will come in lower after the key tenant exiting and repositioning the property will require $ and during that time, no rental income as well)
Pls talk with yourself if it would be good to sell the position to re-allocate the funds to elsewhere or hold on to it.
Thank you. Greatly appreciate.
Hi JCK and nch,
The latest news about IREIT Global isn't news to me at all.
I made a video about this a few months ago.
The loss of its Berlin tenant was in my calculations.
I just published a blog this evening and talked about IREIT Global too, sharing the videos at the same time.
Of course, we must do what we feel is right for us.
Hi AK, interest rate cuts are coming but IREIT's price has hardly budged. Its aggregate leverage is relatively low at 37.2 %, and its weighted average interest rate is actually very low at 1.9%. But it has a very high percentage of fixed bank borrowings at 97.1%, with 56% of its debt tied to the Germany portfolio expiring in Jan 26 which will need to be refinanced. How do you expect the impending rate cuts to affect IREIT's DPU, given the above? Will its refinanced interest rate actually end up still higher than the low 1.9% rate? If so, there could be further downside from here and that's why price hasnt moved much.
Hi MK,
Well, IREIT's Berlin property will be vacant for 12 to 18 months very soon. No income to be generated by that asset then.
So, expect income to be impacted.
There is also the point that you raised and it is a point I have made many times with regards to REITs. They will be refinancing in a higher interest rate environment although as many as 6 or 7 rate cuts are coming by end of 2015.
I made a video almost a year ago to talk about all these and said I would not be adding to my investment in IREIT unless unit price went down much lower.
Still, there were readers who added at between 32c to 36c per unit.
To be fair, it isn't just IREIT, I am not interested in putting more money in any REIT now.
My recent video on banks and REITs made this very clear.
My focus is on income and valuation, not so much the prices.
Thanks AK. I just attended the IREIT's lunchtime seminar for investors hosted by Lim&Tan and asked the CEO similar qns. He said that the refinanced rate for the Germany portfolio will be higher than their currently low rate, but they are also looking at doubling their rent in their current negotiations with potential tenants for the vacated Berlin campus space. Along with their rent indexation policy, they hope to mitigate the higher leverage costs.
Hi MK,
Thanks for sharing!
I also read the latest statement by IREIT regarding their Berlin property.
It is good that there is pre-letting activity going on to take up almost 40% of the available space. Two of those leases are 20 years in length to entities in the hospitality sector.
The Berlin property is very much under rented and could command a higher asking rent, for sure.
Thanks for sharing your findings. :D
Dear AK sifu, just to hear your thoughts.
Recently i met this person who upgraded from his HDB to a 999y lease condominiun about 4y ago. He and wife are in their early 40s, (they have 2 kids under 12y old) middle class earners, owns a car. They managed to accumulate a portfolio of mostly SG REITS worth about a S$1 million which generated enough dividends to help pay for his condo monthly mortgage. At the same time of moving house, he and wife both pivoted and change career with more meaning but lower pay. Basically they are using a super leveraged asset (REITs) to pay for a leveraged asset (999y condo), not sure with all the rights issue and recent DPU cuts by REITS make this strategy a bit shaky or not. I dare not question him since he is a financial advisor, so I just listen.
Hi C,
Well, if he is a professional financial adviser, he should know what he is doing.
As long as he is not 100% or mostly dependent on his portfolio of REITs to fund his lifestyle, he should be OK.
Of course, if his new home is fully paid for or almost fully paid for, there is less to worry.
You are a good person to show concern but if this person is not a close friend, it is probably better to keep quiet. ;)
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