atans1

Reits: Investing primarily for income?

In Financial competency, Financial planning, Property, Reits on 17/06/2015 at 11:46 am

Even my dogs know that when interest rates rise, the yields from Reits should fall, and so will the unit prices.

Here’s shumething from FT that I didn’t think about

but for those investing primarily for income, the yield you obtain at the beginning when you buy your investment is a big protection. If you are happy to keep receiving your income, there is no need to sell the Reit for a loss as interest rates move up.

Of course you will be aware that rising interest rates could lead to problems for Reits’ biz model. But taz another issue.

And I suspect that soon Reits, Biz trusts  (or in the US master limited partnerships, MLPs)will be an alternative asset class to those who at present invest in junk bonds for their yield.

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  1. I do not agree with Ong Kai Kiat that “Singapore will come out of the 0.2% annual deflation as of December 2014 back into inflation as its economy grows from strength to strength.” as I do not believe low energy prices will end, and that our economy will grow from strength to strength. Watch Sep 23 2015. which is 3 months away.
    Rising Interest Rates and How It Will Affect REITs in Singapore
    http://fifthperson.com/rising-interest-rates-and-how-it-will-affect-reits-in-singapore/

  2. Unless rents go up, higher interest rates means lower carry, i.e. the difference between yield on property and interest expense. Low carry leads to dividends cut so the raison d’etre for holding onto REITS is gone. Better to assess each REIT based on the profile of its liabilities in particular the duration of its funding.

  3. Gradual rising interest rates per se doesn’t mean REITS, biz trusts, MLPs will be hammered or lousy investments. As long as the underlying assets are productive, in-demand, revenue generating & yield accretive. In fact a gradual rising interest rate environment is a period of improving & stronger economy with rising profit margins & overall bull market in stocks (think 1992-1996 & 2003-2007). Rents, fees, tolls, service charges, etc etc can be raised & passed on to captive consumers to maintain or even increase yield.

    The bigger concern is the gearing & the type & amount of debt the REITS, biz trusts, MLPs have. High gearing of over 35% may lead to more frequent share offerings & rights issues. If you don’t have the cash to participate, you get diluted & take a big hit to your yield. During a massive credit crunch / financial crisis, or even a long-drawn grinding recession, those with high gearing will be whacked teroh teroh.

  4. risk free rate go up.. EV bound to turn south. run to bonds baby.

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