09 November 2011

Things to Take Note when Investing in REITs

Something that I learnt from investing in REITs:
  • Check the Debt Ratio. If the Debt Ratio is too high, it means a higher posiblity for company to raise fresh money from shareholders through Right Issues or Private Placement and it would dilute the EPS for short term. However, we should access the impact in long run before making final decision. 
  • Check the Management Plan of Acquisition. If the management is very aggresive to expand its portfolio size within a few more years, it is also very high chances that management will issue the placement or right issues to the sharesholders. Again, we should also access the impact of the acquisition and see if the acquisition can bring more profits / cash flow to the portfolio.
  • Check the components inside the Portfolio. Make sure you understand the country risk / sector risk as the Income of the Trust are normally formed by two:
    • Business Risk -The better occupancy rate and the bargaining power of raising rental income, the better the business is.
    • Financial Risk - Fix Rate / Variable Rate of the Borrowings. 
  •  Check the background of the Management and its relationship with the government as well as other related parties.
  • Understand your Investment Horizon and Risk Appetite. REITs always experience an economy circle as the occopuancy rate is always higher when the ecomy is good and lower when the economy is in down turn. In my opinion, we can apply dollar cost averaging to reduce the impact of the timing problem
 Feel free to give me your comments. Please let me know if you are interested in investing in Singapore REITs.

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