In my previous post, I shared how I bought the book for free using a $7 promotion and Google Opinion Rewards credits. KPO never like reading books since young but this is the 2nd book I have finished reading (CZM judges me for not finishing Harry Potter and the Philosopher's Stone). The 1st book was Rich Dad Poor Dad and I am still reading The Intelligent Investor.
There are 8 chapters in total:
1. An Overview of REITs
2. REITs Versus Other Yield Investments
3. Perception Versus Reality
4. Different Types of REITs
5. The Health of a REIT
6. How Much is a REIT Worth
7. Building a String REIT Portfolio
8. REITs in a Volatile Interest Rate Environment
The author, Bobby Jayaraman brought up something that resonated with me - investing in actual property vs REITs. A lot of my friends still prefer buying a second property (condominium) as an investment (even CZM as well before she was pyscho/convince by me). I would then ask them this question - Buying a second property will get you in debt and the rental income is taxable by the government. On the other hand, dividends from stocks are not taxable in Singapore, so why would you want to be taxed by the government? Bobby (my temporary best friend) discussed this too. To be more specific, one would be liable for property tax at 10% - 20% of the value of the property + tax on rental income. Gone are the days where one can purchase a property and the price doubles/triples in a short period of time (our parents' generation where HDB cost $20,000 to $100,000).
Some of the more ridiculous reasonings I hear is we are never getting back our CPF, hence getting a second property is the way to get the money out. I would then share some of my knowledge on CPF that its main purpose is for retirement. Whether we are able to meet the minimum sum, it is still our money but that is a discussion for another day.
Bobby also discussed how Singapore REITs (S-REITs) are regulated by MAS as compared to other countries:
- REIT does not pay any corporate tax if it distributes at least 90% of its income
- REITs can have up to 35% and up to 60% gearing if they obtain a credit rating from one of the 3 major credit rating agencies. Note that this is no longer the case, MAS announced a new guideline on 2015 that REIT will have a single tier leverage limit of 45%.
- REITs can develop property up to 10% of the total value of the properties. This has also been increased to 25% now.
Bobby then addressed the 7 most common misperceptions of REITs such as sponsors dumping assets, REITs will suffer in a rising interest rate environment, REITs constantly asked unit holders for more funds, etc and explained the different types of REITs:
- Retail
- Hospitality
- Office
- Health care
- Industrial
- Cross-border
Some of the important numbers/metrics to look for include NPI (Net Property Income), property yield, interest cover, etc. NPI is important because it can be used to value a property earnings power after deducting related expenses. NPI divided by the property value gives the property yield (not to be confused with dividend yield). In an ideal scenario, increasing NPI and DPU is the best. The book recommended that > 3x interest cover is preferred as it reflects the REIT's ability to service its debt.
In terms of valuing REITs, Bobby taught the following 6 ways, the various financing strategy of REITs and the concept of a yield accretive acquisition.:
- Yield-based approach
- NAV approach
- Capitalization method
- Discounted cash flow method
- Replacement cost method
- Comparable sales method
Last but not least, there is a huge section on the interviews with various REITs CEOs.
All in all, I feel that this will be an excellent introduction to REITs as an investment for new investors. If you are a KPO just like me who prefers not to spend any money, there are a lot of free resources out there on the Internet. A lot of what has been discussed in the book were not new to me.
These are the free resources:
- Investment Moats: The Definitive REITs Training Center
- Dr Wealth: REITs in Singapore
- SIAS: Real Estate Investment Trusts (REITs)
A reader pointed out that it is possible to download ebooks for free from our National Library! Do check out these links:
- eReads
- How to borrow e-books from the National Library Board
There are 8 chapters in total:
1. An Overview of REITs
2. REITs Versus Other Yield Investments
3. Perception Versus Reality
4. Different Types of REITs
5. The Health of a REIT
6. How Much is a REIT Worth
7. Building a String REIT Portfolio
8. REITs in a Volatile Interest Rate Environment
The author, Bobby Jayaraman brought up something that resonated with me - investing in actual property vs REITs. A lot of my friends still prefer buying a second property (condominium) as an investment (even CZM as well before she was pyscho/convince by me). I would then ask them this question - Buying a second property will get you in debt and the rental income is taxable by the government. On the other hand, dividends from stocks are not taxable in Singapore, so why would you want to be taxed by the government? Bobby (my temporary best friend) discussed this too. To be more specific, one would be liable for property tax at 10% - 20% of the value of the property + tax on rental income. Gone are the days where one can purchase a property and the price doubles/triples in a short period of time (our parents' generation where HDB cost $20,000 to $100,000).
Some of the more ridiculous reasonings I hear is we are never getting back our CPF, hence getting a second property is the way to get the money out. I would then share some of my knowledge on CPF that its main purpose is for retirement. Whether we are able to meet the minimum sum, it is still our money but that is a discussion for another day.
Bobby also discussed how Singapore REITs (S-REITs) are regulated by MAS as compared to other countries:
- REIT does not pay any corporate tax if it distributes at least 90% of its income
- REITs can have up to 35% and up to 60% gearing if they obtain a credit rating from one of the 3 major credit rating agencies. Note that this is no longer the case, MAS announced a new guideline on 2015 that REIT will have a single tier leverage limit of 45%.
- REITs can develop property up to 10% of the total value of the properties. This has also been increased to 25% now.
Bobby then addressed the 7 most common misperceptions of REITs such as sponsors dumping assets, REITs will suffer in a rising interest rate environment, REITs constantly asked unit holders for more funds, etc and explained the different types of REITs:
- Retail
- Hospitality
- Office
- Health care
- Industrial
- Cross-border
Some of the important numbers/metrics to look for include NPI (Net Property Income), property yield, interest cover, etc. NPI is important because it can be used to value a property earnings power after deducting related expenses. NPI divided by the property value gives the property yield (not to be confused with dividend yield). In an ideal scenario, increasing NPI and DPU is the best. The book recommended that > 3x interest cover is preferred as it reflects the REIT's ability to service its debt.
In terms of valuing REITs, Bobby taught the following 6 ways, the various financing strategy of REITs and the concept of a yield accretive acquisition.:
- Yield-based approach
- NAV approach
- Capitalization method
- Discounted cash flow method
- Replacement cost method
- Comparable sales method
Last but not least, there is a huge section on the interviews with various REITs CEOs.
All in all, I feel that this will be an excellent introduction to REITs as an investment for new investors. If you are a KPO just like me who prefers not to spend any money, there are a lot of free resources out there on the Internet. A lot of what has been discussed in the book were not new to me.
These are the free resources:
- Investment Moats: The Definitive REITs Training Center
- Dr Wealth: REITs in Singapore
- SIAS: Real Estate Investment Trusts (REITs)
A reader pointed out that it is possible to download ebooks for free from our National Library! Do check out these links:
- eReads
- How to borrow e-books from the National Library Board
Actually, this book can also be borrowed online from our library. Great book!
ReplyDeleteHi owq,
DeleteI guess you are right! Never really visit our national library so that has never occur to me. Hahaha. Let me update the post.