REITS and Trusts to avoid

Investing in REITs is rewarding because of the juicy dividends. However, certain REITs have higher risks than others.

The market is forward-looking and very efficient in pricing equities and hence those REITs with yield > 7% usually have some inherent risks involved. Do not ever blindly invest in REITs with high dividends. The recent plunges in Asian Pay TV and others serve as a wake-up call / reminder to many of us.

Here, I will present a non-exhaustive list of REITs and Trusts that I will avoid. You may choose to disagree. I welcome any feedback. Typically once I see red flags such as short track record, consistently dropping DPU for a few years, unusually high gearing or concentration risks (e.g. tenant, geographical), I will avoid.

The market is pricing the REITS below with yields of between 6 and 10%, but I will not take the risk.

*Update*: I look at the business fundamentals only. Even if the NAV is very attractive or the price has reached 52-week low, I would not touch them until the fundamental improve. After all, the fundamental determine whether the dividend is sustainable.

REIT	Type	Pros & Cons
Accordia Golf Trust	Country Club	- Not worth investing
Asian Pay TV	Retail	- Poor business fundamentals - Cable TV is Sunset industry (?)
Cache logistics	Industrial / Logistics	- Declining earnings - Increasing vacancy
Lippo	Retail	Affected by Indo tax. Higher gearing > 45%. DPU affected.
Sabana REIT	Industrial	- DPU dropping over past few years
Sassuer REIT	Retail	- High concentration risk in China - S-chip stigma - short WALE
SoilbuildBiz	Industrial / Logistics	- Declining growth - High gearing
StarhillGbl Reit	Retail (12% Commercial)	- DPU dropping for past few years (2018) - Most of revenue from Wisma Atria and Ngee Ann (>60%) - Retail malls target mid to high-end consumers

For the following, I will avoid for now but I will continue to monitor their track record and even may start to invest in them once the red flags are gone.

AIMSAMP Cap Reit	Industrial / Logistics	- ascendas REIT seem better - DPU drops from 2016-2018 - revenue growth is flattish
BHG Retail Reit	Retail	- portfolio of just five properties in China is very concentrated. - short history in the public eye, and the true long-term resilience of the portfolio cannot be accurately reflected over just a three-year history as a public entity. - the five properties have land use terms expiring between 2042 and 2047. This is only less than thirty years away. Therefore, the REIT may have to fork out additional capital when the time comes to renew the land leases. - manager yet to take its share of distribution http://aspire.sharesinv.com/35947/si-research-should-investors-pay-attention-to-bhg-retail-reit/
CromwellReit EUR		- too new
Dasin Retail	Retail	- wait for a few more years to observe - Concentration risks: 4 malls in Zhongshan City of China’s Guangdong province. (China’s Pearl River Delta) - S-chip stigma Pros: - good growth in 1st year. - gearing only 30% -- room for acquisition
EC World REIT	Industrial / Logistics	-Risk: master leases expiring in 2020 - dividend sustainable? - income in RMB but div in SGD https://www.fool.sg/2018/06/20/ec-world-real-estate-investment-trust-the-bear-case/ https://www.theedgesingapore.com/article/5-reasons-not-participate-ec-world-reit%E2%80%99s-ipo http://ernest15percent.com/index.php/2018/07/02/ec-world-reit-potential-strong-growth-ahead-29-jun-18/
IREIT Global	Commercial	- All 5 office properties concentrated in Germany - 51% of gross rental income from 1 tenant (GMG) - 32% from 1 tenant (Deutsche Rentenversicherung Bund) - High leverage (40%) - Lots of short-term debt Average Weighted Debt Maturity: 1.4 years - WALE 3-5 years only - Forex risk (EUR vs SGD) (hedged) Pros: - Avg 98% occupancy - 88% fixed rate debts - All freehold properties
Mapletree NAC	Retail	-Festival walk contributes 63% to Net income (concentration risk) - High gearing 40% Pros: - P/B < 1