Given the current market condition, should we unlock our war chests to invest in Singapore REITs?
I took an in-depth look at the REITs available on local shores and guess what ? Out of 34 reits and stapled trusts, 23 of them are currently traded below book value as of 18 Sept 2015.
To quote Warren Buffet's famous words, “When everyone’s fearful, be greedy”.
Does this spell opportunity for us, Value Investors? Yes it certainly does! But WAIT! Lets understand some fundamental factors before diving in.
Fear is the flavour of the Month
Well, the fear factor is palpable these days and many investors are anxious about the overall market sentiment.
Together with the overreacting media constantly fanning the flames of trepidation (a necessary evil to generate sensationalism), anxiety is on the brink of turning into panic.
What seems to be at the root of this fear factor is the dreaded rise in Federal Interest Rates.
Be an Opportunist - Rising Interest Rates are Not a Bad Thing
As a smart investor, or should I say a contrarian investor, you should take this opportunity to be on the lookout.
While many feel that the raising of interest rates would be bad for the stocks. But think of it another way, this is in fact a good thing! If the Feds have the ability to raise interest rates, at the core of the rise is an improving and stabilising economy.
That being said, interest rates must be raised prudently and in a controlled manner, lest they spark off detrimental effects as in the previous crisis.
Interest Rates and REITs
Do note that an Interest Rate rise will have a direct impact on REITs, which is why the crux is for us to pick well-managed and fundamentally strong ones. Picture this: you have funded your own home through a housing loan which has so far been pegged to low interest rates. When the time comes for re-finance, with the possibility of an interest rate rise in the background, will you choose to fix the rate or opt for a variable rate? The answer is clear.
Similarly, I am sure the competent REITs manager will foresee the rise in interest rate and react accordingly. If you were to study the REITs available on the market, many have started protective measures. Most of the managers, having been through the financial crisis of 2008 are very likely to ensure that they are adequately funded and protected.
Now for the Gold
Here are some Reits/Stapled that are at least 20% below their respective book values as of 21 Sep 2015 (Disclaimer: these are not a stock recommendations, but more for discussion purposes).
Respectively, the REIT in question, followed by the percentage their price is below book value:
Sabana REIT – 26.4%
OUE Commercial Reit – 41.36%
Far East HTrust – 36.34%
Saizen Reit – 26.32%
Keppel Reit -30.43%
Keeping It Simple and
Master Trainer and Author of Profit! From Investing Series
Disclaimer: The information presented above is purely for educational purposes and not to be taken as a recommendation to buy or sell any investment