As a result of a weaker currency in other countries (which the REITs have properties in) against the Singapore dollar (the currency in which the REITs’ report its financial results in), REITs that have properties in other countries saw their top- and bottom-lines being negatively impacted. In turn, its distribution payout to unitholder also fell (another reason that led to a decline in distribution payout was higher borrowing costs.)
Because of that, unitholders are starting to question whether it is the ‘right move’ for REITs to invest in countries outside of Singapore. More importantly, at this point in time, whether they should start to reduce their concentration overseas by divesting the properties, and recycle the funds to invest in properties in Singapore.
My personal take on this issue: From the point of view of unitholders, it is totally understandable, because when they make the decision to invest in a REIT, they do so in anticipation that the REITs will increase their distribution payout over the years. Should distribution payout were to fall for any reason, unitholders will start to ask questions.
On the other hand, we also need to understand this – while Singapore is one of the ‘key financial hubs in Asia’, and at the same time, being one of the very few countries that saw the valuation of properties go up this year compared to the last, we need to bear in mind of the fact that the size of Singapore is just ‘a small dot’ when compared against the other countries in the world, with a size of just about 728.6 km². That said, the number of opportunities are few and far between. If the REITs were to concentrate all its investments in Singapore, then their growth will undoubtedly slow significantly – and we all know for the fact that acquisitions is one of the fastest ways for REITs to grow its financial performance and distribution payout to its unitholders.
It is for the exact same reason (because of the lack of opportunities in the home country) that the REITs’ management expand overseas – first, opportunities to acquire properties and grow the REIT will be much more compared to limiting itself to Singapore; second, most of the properties overseas sit on freehold land, which in terms of valuation, are better compared to properties sitting on leasehold land.
While nobody have control over the movement of currencies, but many of the REITs’ management take proactive steps to minimise impacts of its volatility by entering into forward contracts to hedge foreign-sourced income into the Singapore Dollar. Another thing the management tend to do prior to making any acquisitions is making sure that the yield grows at a higher percentage than the currency depreciation.
To conclude, in order for the REITs to continue to grow its financial performance and distribution payout to unitholders over time, it is inevitable that they will need to look for opportunities outside of Singapore. Rather, I am more concerned about whether acquisitions they make are at a good discount to the valuation, and also whether they are yield-accretive.
In ‘Building Your REIT-irement Portfolio’ which I have authored, I have dedicated a chapter where you will find my responses to some of the most commonly asked questions by REIT investors.
You have the option to grab a digital copy (in PDF format, which you can download immediately after payment is completed), or a physical copy (which will be sent to the address you have specified in the payment page) here.
Are You Worried about Not Having Enough Money for Retirement?
You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.
But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).
In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!
You can find out more about the book, and grab your copy (ebook or physical book) here...