The REITs situation

Many happy greetings from the administrator in this happy festive period. Apart from the festive gatherings that I will be attending ,several issues occupy my mind.

One of them is the REITs situation in Singapore. Most investors still remember the stunning rise of REITs some months back this year, their prices buoyed by the high hopes brought about by the proposed dividend yields , with an average about 7%. However, the glamour faded just as quickly, with doubts about their financial stability brought about by the rising interest rates. Rising interst rates makes it harder for REITs to service their large debt, since many have to borrow to acquire new properties in order to sustain their dividend yields. Currently,most REITs are just trading slightly above their IPO price. I suspect that there is some support from the annual stockmarket buoyance and optimism at the year end, inhibiting further price declines. even so ,pessimism remains high, with the recent AUSnet (similar entity) trading below their listed price on the first day of trading.

Anyway, one has to keep an eye on the interest rates.No doubt the increase in interest rate has to come to an end but when? Few people know, but my take is that it should be soon since the FED has tightened numerous times with the rate at about 4.25 %. In investment, cycles are present, and this will be no exception.Continuous rate pushing my push the country into recession. Similarly, sentiment is bound to improve when the REITs announce rate hedging techniques which will further stabilise the situation.

But these will not come too soon. The fall has just started and the current stability is merely supported by Dec optimism and the bad results which will result from the overborrowing to acquire new properties will show soon,

Anyway, REITs as a whole,fundamentally, remain a high yield dividend play with the yields much higher than traditional securities with yiels averaging 4%.
Remember, the lower the entry price, the higher the yield.

For now, enjoy your holidays!

Linus