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REITs can be part of your portfolio but not your entire portfolio

Posted on by careyourpresent

Many Singapore Investors love Real Estate Investment Trust (REITs)! Why? Because they are mandated to pay out at least 90% of their taxable income as dividends. As a result, one would have dividends (money) credited into their banks at quarterly basis or half yearly basis.

Hence, there are many “gurus” out there who ask their “followers”, “disciples” etc to buy REITs for their retirement so that especially when one retire, the REITs can provide the cash flow for daily expenses. If the cash flow exceeded your expenses, you can enjoy Financial Independent!

Reits are part of the reasons why many say Dividend Investing is Dangerous.

However, are REITs really that good? really that reliable as a source of regular cashflow income?

What are REITs?

A Real Estate Investment Trust is a company that owns, operates, or finances income-producing real estate across various sectors such as residential, commercial, industrial, or hospitality.

These trusts are publicly traded on major stock exchanges, making them accessible to individual investors, which otherwise is too hefy for retail investors who want to invest in property.

REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. The 90% income distribution requirement ensures a reliable income stream for income-seeking investors.

Singapore REITs

There are many different kind of REITs (retail, office, hospitality, logistics, industrial, data etc) in Singapore, you can look at the full list via the SGX website.

People love REITs, by owning REITs, it would implying own part of a property that give you rental income as dividends regularly.

The cool part is that you don’t need to worry about the maintenance of the properties, managing the tenants (as compared to buying and rent out a real physical property) as the REITs manager will do for you. Small upfront cost to purchase the shares of a REITs instead of huge down payment for a physical real property.

Don’t you love REITs now? Regular Dividends, low upfront cost, REITs manager manage the properties for you, one just need to shake leg and collect dividends? Great retirement investments!

The Truth

However, the real truth is often otherwise.

Payout Ratio, highly leveraged

Reits often paid up to 90% of their earnings, ultimately, this is mandated by the law and that’s what made REITs attractive right? However, this means that there is little to none retained earnings. Hence, what would REITs do?

Borrow from the banks or the Unitholders!

Additionally, do not forget that REITs are highly leveraged instruments. Gearing can be 30% to 50% (the limit by law is 50% now, previously was 40% if I didn’t remembered wrongly). This means that they need to pay lots of interest!

What are the current interest rates? Keep increasing!

What happened if the interest rates are increasing?

The REITs will need to pay more!

For those REITs that have borrowings who are due these two years and need to refinance, they would also need to borrow at a higher rate! This means less earnings and thus lower DPU (distribution per unit), which means less dividends for unit holders! Consequently, the price of the REITs would drop and result in capital loss for the investor!

Some REITs which cannot sustain to pay the borrowing costs, cannot refinance the properties, or if the valuation of the underlying properties drop etc. What will happen?

What has happened?

Look at what happen?

Look at the US REITs listed in Singapore you would know.

Or you look at even the famous Mapletree Industrial Trust? Drop from $3 to $2.2+

Big Things?

Dropping of DPU which results in lesser dividends are small thing for an Investor. At most take in less dividends and spend less eat cai png.

Capital loss is small thing for investor as they would argue that just collect dividend, ignore share prices and one day it will come back, especially interest rate cannot be so high for ever (how you know?)

SO what is the big thing?

What happen if the REITs unable to refinance, pay interest cost but still want to acquire properties etc?

Right Issues?

A rights issue is a method used by companies, including REITs, to raise capital by offering existing shareholders the opportunity to purchase additional shares at a predetermined price. This allows the REIT to secure additional funds without turning to external sources such as banks or private investors.

For REITs, rights issues are often employed to finance property acquisitions, reduce debt, or fund other growth strategies.

When a REIT decides to conduct a rights issue, it typically announces the terms and conditions, including the number of new shares offered for each existing share held and the subscription price. Existing shareholders are then given the right to subscribe to these new shares in proportion to their existing holdings.

Right Issues are good!

Many argue that right issues are good! Why?

Some will argue…

Because it give you chance to participate, increase your investment amount such that will give more returns in future especially for those yield accretive rights issue! This is especially true as you can get more units are cheaper prices which you will not be able to do so in the ever rising price of the REITs in the past years…

But what is it a bear market for REITs? What if the share price keep dropping? DPU keep dropping? Are you sinking more hard earned money into something not worthy? or are you increasing your future return by sinking in more capital?

Whether the rights issue are good for a specific REITs, we can put that aside first…but…

BUT….

Imagine you are a Retiree...that depends on dividends for your day to day expenses.

Would you be able to cough out additional cash for the REITs’ right issue?

Additionally, don’t forget the purpose of having REITs is to have passive income cash flow for your expenses according to “GURUs”?

Where is the steady dividends for your retirement that the “GURUS” have told you that you get for your retirement? (perhaps they can retire from your course fees paid but not you retire…haha!)

From another perspectives

I am not saying REITs are not good investment vehicles. In fact, they are good, provided you buy the correct one, plan your overall portfolio well!

Make sure…

You are aware of advance overall portfolio management!

Know what are REITs!

Aware that you can get rights issue anytime given that REITs are highly geared, sensitive to interest rates! Know your risk before investing!

Know yourself, know your own Financial Literacy

Know the 5 Evergreen Investment Principles!

Remember!

BUT Don’t put 100% in REITs. Spread your risk around.

Let’s say you only intend to have 30% REITs, 30% Netcash companies, 10% Growth Stock, 5% Crypto, the rest keep as cash/cash equivalents as opportunity funds etc…In this way, even if the REITs call for rights (which you have already expected and plan for it), then you will survive and prosper.

REMEMBER:

GOOD REITs can be part of your portfolio but not your entire portfolio

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Money just buy you the chance of freedom but can’t buy back time. In life, there is no reset button. Time is limited but money is not.

When you are young and working, you exchange time for money. When you are old, you can have lots of money but you can’t buy time back, especially the things that you have missed (your strong health, time with young child) while busying striking out in career.

Your kids grew up and they no longer need you to accompany them. They no longer want to sit on your lap to share/do things with you…all these time you spent in your 9 to 6 or even longer cubicles…can the money that you have earned by you back these?

We always thought we have more time with our old parents, but we are wrong. Time with them is ticking away every day. One day it will suddenly be gone. There is no regret medicine, no reset in time. Gone is gone and cannot come back. No matter you are billionaires or millionaires, you cannot reset this.

We always thought that we have more time with our spouse every day, but we are wrong. One day they will be gone too. When you read this, please go tell your spouse that you love him/her and he or she is the best thing that you ever had in your life.

Love your life daily. You have one less day with your spouse, parents, children and yourself. Time is ticking away.

Focusing Careyourpresent & living a fulfilling life by supercharging your mind & investment/online income. Careyourpresent Series focus on things that one MUST know in their Life.

More articles can be found here.

For those who are interested in regular updates of my articles, please join the others to sign up for my free newsletter to has my newest blogposts sent to your mailbox for free!

For real time exclusive updates on market news/life (especially Crypto markets where the news move fast, important news will be shared directly via tweets or telegrams), do also join the platforms below and engage with other like-minded people!

You may also contact me via [email protected].

Deal 1:

Webull – Get free money!

Good deal! Do not miss this! Sign up here now for free money!!

Deal 2:

Trust Bank New Clients → Free SGD$35 FairPrice Vouchers

  • Sign up using referral code KNDBPEPT (Free $10 FairPrice E-Voucher). Key in this code after you download the Trust Bank App from Trust Bank Website
  • Receive a S$25 FairPrice E-Voucher from your first card spend as a credit card customer or when you make your first S$500 deposit for Savings account
  • Many other attractive vouchers in the app – refresh every month
  • No minimum balance account and can earn up to 2.5% for the first 125k
  • No foreign transaction fee, great exchange rates when overseas. See my review via Trust Card – Excellent Card for overseas usage.

Deal 3:

FSMone – Cheap Comms and can transfer your shares to Personal/Joint CDP for Free

I am using FSMOne.com to invest in funds & ETFs (including money market funds). FSM is good due to the low comms and the free transfer from FSMOne to CDP (typically takes less than a week to transfer). If you do not have an account, you can sign up here. Please use my FSMOne referral code: P0413007.

Deal 4:

Eskimo – Best Option for Roaming!

For now, you can get 500MB for free just by signing up with my referral link, no purchase required (I get 500MB only too, but only if you buy a paid plan). Referral code: CHING104915

You can read my review here.

Money just buy you the chance of freedom but can’t buy back time. In life, there is no reset button. Time is limited but money is not.

When you are young and working, you exchange time for money. When you are old, you can have lots of money but you can’t buy time back, especially the things that you have missed (your strong health, time with young child) while busying striking out in career.

Your kids grew up and they no longer need you to accompany them. They no longer want to sit on your lap to share/do things with you…all these time you spent in your 9 to 6 or even longer cubicles…can the money that you have earned by you back these?

We always thought we have more time with our old parents, but we are wrong. Time with them is ticking away every day. One day it will suddenly be gone. There is no regret medicine, no reset in time. Gone is gone and cannot come back. No matter you are billionaires or millionaires, you cannot reset this.

We always thought that we have more time with our spouse every day, but we are wrong. One day they will be gone too. When you read this, please go tell your spouse that you love him/her and he or she is the best thing that you ever had in your life.

Love your life daily. You have one less day with your spouse, parents, children and yourself. Time is ticking away.

Focusing Careyourpresent & living a fulfilling life by supercharging your mind & investment/online income. Careyourpresent Series focus on things that one MUST know in their Life.

More articles can be found here.

For those who are interested in regular updates of my articles, please join the others to sign up for my free newsletter to has my newest blogposts sent to your mailbox for free!

For real time exclusive updates on market news/life (especially Crypto markets where the news move fast, important news will be shared directly via tweets or telegrams), do also join the platforms below and engage with other like-minded people!

You may also contact me via [email protected].

Category: Investment and Finance

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