Considering how there is a lower footfall in malls due to COVID-19, is now a bad time to buy REITs? When would be a good time to buy REITs in this gloomy economic outlook?

Assuming you're referring to Singapore REITs. Retail REITs (with some exceptions) have underperformed the sector. There is a lot of retail space in Singapore, and it's easy to do your own research by visiting the malls and counting how many of the units are vacant. Even though the managers do try to camouflage the empty units. As a general rule well-run REITs need to have occupancy over 90%, and ideally north of 95%. As well as simple rental income, a lot of the malls may actually charge the tenants a % of their sales, so footfall matters.

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Another thing to consider with REITs is the average length of the lease expiry. This number is reported for all the REIT as the "WALE" - weighted average lease expiry. Generally speaking the higher the WALE the better. Although failing tenants can go bust and then the length of the leases can become irrelevant. Retail and office leases are usually only 2 or 3 years, so they are far more vulnerable to economic cycles. REITs focusing on other sectors like healthcare and industrial tend to have higher WALEs usually anything from 3.5 years to as high as 7 years.

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Secondly look at the amount and cost of their debt, and the length (tenor) of the loans. If the average tenor of their loans is longer it's better. Likewise, it's better if the average interest on their debt is lower, and their overall level of borrowing (gearing) is lower. Usually, they should have a ratio of income from rent etc that is at least 2 or 3 times the cost of servicing their debts.

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My advice is to always do your own research. However, in general, we tend to find that industrial REITs and healthcare REITs are better long-term performers (and thus better investments) than retail or office REITs.

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It might be a good time to invest in REITs. However, it really depends on where interest rates go. Lower interest rates heavily favour REITs because, in general, they tend to have high-ish gearing ratios of about 35% to 45%.

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