Asked on 20 Feb 2020
I notice that most of the REITs in SGX is going up. Why is this the case? I thought it'd be going down?
Reits will collect rental from tenants, that is fixed no matter how bad the tenants' business may be, although some reits may offer rebates or discounts, or undertake certain activity to help with overall business.
Having explained the major position, here are some alternative thoughts for you to think about during this crisis:
between stocks and reits, given the nature of their business, which one do you think has a greater fallout from the covid 19? Generally, stocks would have a tougher climate to battle it out. It would make more sense that holding a reit might actually be safer than holding a stock.
not all reits have it the same. Do you think hospitality reits (that manage hotels, golf courses) would have a more difficult year than those that manage hospitals / warehouses / industrial offices?
given the economic outlook, do you think countries will raise, maintain or lower interest rates to control the economic climate? Reits will almost always have more debt, and tend to benefit more from interest rate cuts.
given the uncertainty around q1, do you think more investors will want more secure dividends from some "safer" reits or other stocks?
There's a lot of activity going around, but generally more investors would probably find reits a safer haven than holding some of their other positions.
2 more comments
25 Feb 2020
REITs in general have a low correlation to stocks and bonds. They are also typically seen as defensive investments, so when market conditions seem to be worsening, REITs tend to remain resilient. Real estate is always in demand and tenants are bound by a contractual commitment with leases that tend to be longer than a few years. This assures the REIT a steady stream of revenue, and hence dividends (REITs have to pay 90% of their taxable income as dividends). That guarantee makes it attractive for investors to add REITs to their portfolio.
Furthermore, in times of market uncertainty, investors look for investment vehicles that offer regular dividends and relatively stable income - benefits that REITs offer in this current climate.
There’s smart money and there’s dumb money.
Smart money trade because they know something others do not.
Dumb money trade because they think they know something others do not.
I regard myself as dumb money. So I don’t know. Neither should anyone else, if not they wouldn’t be working.
Very hard to understand market sentiment based on current outlook. On top of the many things that were being discussed here,
1) Market expect the interest rate to remain low because of the uncertainty going on, thus resulting in lower borrowing costs ?
2) Market expect the government to intervene and help tide through this difficult time, rebates and tax offset & what's not.
3) Market believe that REITS are better investment than stock (Beside defensive stocks like Netlink & Vicom etc)
So many different ideas are floating around, best to just absorb and make a decision that you can sleep soundly at night with.
I think its because of market sentiment.
So far i think covid still havent caused the market totally panic yet.
Having say that, still too early to conclude the effect of Covid to REITS market as we are only at the early stage, I hope I'm wrong though.
Landlords collect rent whether or not there is virus.
Even though some malls are giving rental rebates, the virus is only temporary, maybe a few months only.
After the virus, it will be back to collecting rental as per normal.
Expectations of further QE/interest rates cuts around the world
Flighty to Safety
Perception that Singapore had this covid virus under control
Reits collects rental from tenants that are fixed due to their lease agreement. That is why it is viewed as a more stable asset
Sgx has a strong moat and is fundamentally strong, debt free. Thus. Sgx is a decent stock to invest.
Market sentiments are of the view that US Fed would likely cut interest rates in view of the world's weak economic growth as a result of the Covid - 19 virus. That is why prices of REITS in sgx are still going up.
Too many reasons.
Maybe market already priced in the effects.
Maybe, when the price went slightly down, REITs saw it as the right price to repurchase their shares.
Maybe the panic buying means malls will make more money
Maybe Market already gotten out before this whole Virus hoo haa.
Maybe Market thinks the Singapore Budget measures are enough to stop the decline in performance of REITs.
Maybe quarterly report of REITs not out, so Market can't know whether it will go down or not.
The thing is, no one knows why it didn't go down, just because there are too many maybes.
Prices of anything on the stock market does not necessarily reflect market realities but market sentiments. it depends on what the market beliefs about the data that is published.
so to profit, you need to interpret how the market reads the data as well as how you interpret the data.
REITs hold quite strong correlation with high yield bonds.
Companies pay rental, fixed payments monthly unless they collapse. The only question is who they pay rental too, is it a cheap warehouse or an A-class office in CBD.
During bad times, investors (especially yield investors) flee to bonds due to the fixed payment nature. This means that even if companies do badly, they still have to pay their interest or their rental.
This is in contrast to normal shares, which you get entitled to a share of the profits (which drops during bad times).
This is the reason why REITs gained strongly in 2019, and why it continued gaining this year.
But as we speak, REITs are falling (Lion-Phillip is down 1.5% or smth as of this writing). This is likely due to a lot of REITs (especially commercial ones) announcing programs like free parking or rental rebates.
Actually most of the REITs stocks did fall in Jan when the virus fear was highest, especially those that focus on shopping malls or with bulk of their properties in China. But gradually, I guess the general perception is that the impact will not be as negative as what was expected, so the prices recovered from then. Over time though, as what others have explained here, this virus is expected to be a short-term event, so long-term wise REITs are still seen as safer and more stable to invest in.
Prices of some REITS did drop at the beginning, especially hospitality and retail.
But with the situation seen as being under control, confidence has been restored.
Anyway, rents will still be collected even if people are working from home, for example, in the case of commercial and industrial REITS.
Of course there will be repercussions.
for investors with very longterm approaches these short term developments are not of importance