5 Things that I Look for When Investing in REITs!

In my previous article, I shared about how and where I invest my money. When it comes to active investing, my niche and strength mainly in researching and identifying opportunities in the Real Estate Investment Trusts (REITs) sector in the stock market.

REITs are great options for investors looking to build a consistent dividend income portfolio, while also having exposure to the commercial real estate sector. 

In this article, I would like to share 5 fundamental aspects that I consider when I invest in REITs.

These 5 aspects are also discussed in detail in my live REIT Income Investing Coaching Sessions, so if you are interested to build a consistent dividend income portfolio via REITs, be sure to click HERE and check it out!

Without further ado, let’s start!


#1 Is the REIT’s business nature suitable to grow in this current environment?

Not all REITs are born the same.

As an example, IGB REIT is REIT that runs a retail business that runs the operation of Mid Valley and The Gardens. On the other hand, Al-Aqar REIT is in the healthcare business where they own and/or operate hospitals and healthcare centers like KPJ Hospitals.

In other words, while both companies are categorized as REITs, the opportunities and risks involved with both IGB REIT and Al-Aqar REIT are fundamentally different.

Hence, it is important for us to recognize the business nature of a REIT and identify whether the REIT is suited for growth current (and future) market & business environment.

Related: Pros and Cons of different REITs HERE


#2 Healthy Balance Sheet

For REITs, a healthy balance sheet is extremely crucial in the operation of the business.

In essence, the health of a balance sheet refers to how well a REIT is in managing its liabilities (mostly debt) in relative to its asset (ie. Cash).

One very good measure of a healthy balance sheet is via Gearing Ratio. Gearing Ratio measures the company’s borrowings relative to the value of its assets.

This also means that Gearing Ratio is able to tell us whether a REIT is overborrowing. Generally, a REIT is required to maintain a gearing of 50% or less.

But personally, I like to be more stringent with my selection and will only go with REITs with gearing of 40% or less.

How to look for Gearing Ratio?

Method: On quarterly/annual report > Ctrl + F "Gearing" 

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IGB REIT's has a Gearing of 26% and 27% respectively for Financial Year 2019 and 2018. (Source: IGB REIT FY2019 Annual Report)

#3 Income Growth

As an investor, of course I am always be looking to invest in a business that keeps growing.

This translates to past consistent growth in revenue & profit of a company. In REITs, this is no different.

As a real estate business that earns mainly on rental income, it is crucial that under normal circumstances, the income of the business keeps growing consistently.

A consistent growth in income will, for most of the time, ensure growth in dividend payout to investors.

How to look for the details of a REIT's income?

Method: Via the income statement in quarterly/annual report, or via apps like KLSE Screener

Axis REIT's Revenue & Profit growth over the years. (Source: KLSE Screener)

#4 Occupancy

As a real estate business that depends on rental income, the lifeline of REITs is highly dependent on the occupancy rate of their properties.

As an example, IGB REIT’s income will be highly dependent on how well occupied the rental is in Mid Valley and The Gardens.

I will go more in-depth on this topic in future articles, but in general, there are 2 rental models of REITs:

The first rental model is around a short, normally yearly rental contract, where REITs’ management will have to renegotiate new contract terms on a yearly basis. This is usually seen among Retail REITs like IGB REIT and multi-tenant office building on Office REITs.

The second model is a longer, multi-year rental contract (or lease), where REITs’ management secure longer-term contracts (usually 3-5 years and even longer) with tenants. This is usually seen in Industrial REITs that run factories & warehouses, Hospitality REITs that manages hotels and Healthcare REITs that run hospitals.

How to look for a REIT's Occupancy Details?

Method: On the annual report, Ctrl + F "Occupancy"

Occupancy rate of both Mid Valley & The Gardens was at 99% respectively. (Source: IGB REIT FY2019 Annual Report)

#5 Potential Acquisition

While investing in REITs, an important indicator to gauge potential income growth of a REIT is through potential acquisitions.

As a real estate business, the major way for a REIT to improve income is to acquire quality properties under its portfolio.

This will ensure longer-term rental income growth and translates to better dividend payout for investors.

How to look for a REIT's Acquisition Details?

Method: Now, this will be a little tricky but generally, under Quarterly/Annual Report, you can Ctrl + F "Acquisition". Otherwise, I recommend reading through the Quarterly Report and you'll easily spot any acquisitions under the pipeline.

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Atrium REIT proposed new acquisitions (Source: Atrium REIT 4Q FY2019 Quarterly Report)

No Money Lah’s Verdict

So here you go! These are 5 fundamental aspects that I look into when I invest in REITs.

For sure, there are several other little details that will help in my decision-making process, but these 5 aspects generally make up my initial impression of a company.

Are you investing in REITs as well? What other aspects do you look into a REIT before making your investment decision? Share with me at the comment section below!

Else, if you have any questions or things that you would like me to cover on REITs or investing in general, do let me know at the comment section too! :)


p.s. Keen to Learn More About How You Can Build a Reliable Dividend Income from REITs? Click HERE to Find Out More!


If/Then Mindset: How this Hugely Overlooked Mental Skill will Transform Your Investing Performance

Have you ever been in a situation, where you were looking at a stock that you think you should buy, yet did not pull the trigger and ended up regretting your inaction?

How about the times when you think you should get out of an investment, yet too clouded by emotions to do so and ended up taking a huge loss?

When I first started in the market, I faced the similar problem over and over again. Not only it was frustrating, the huge emotional swings involved were also extremely tiring.

As times went by, I have learned an important, yet hugely overlooked mental skill by many that have since helped me improve my investing and trading performance alike.


What is the If/Then Mindset?

If/Then mindset is a simple, yet critical mental skill that is hugely overlooked by new investors and traders in the market.

In essence, the If/Then mindset is a mental simulation of the possible outcomes given a particular set of scenarios, and the actions that you will take should any of these outcomes happen:

“If A happens, I will do X. If B happens, I will do Y.”


Okay, So How Will the If/Then Mindset Improve My Investing Performance?

Let’s look at a simple ranging chart pattern, and how the If/Then mindset could help improve your performance:

What we are looking above is a stock price in a ranging (or zig-zag) pattern. For an inexperienced investor or trader, it is easy to conclude that there is no trend going on with this particular stock and hence no ‘excitement’ in the price.

This chart would be super boring to untrained minds.

However, using the If/Then mindset, one could easily simulate the potential price movements of the stock (scenarios A, B, C). With that, various interesting opportunities could be identified prior to any price movement at all.

Different possibilities can be simulated with If/Then mindset.

As an example, if scenario A happens, then one could buy at the pullback upon a small retracement. However, should scenario B happen, then one could look to buy at the support level. That said, if scenario C plays out, then one could look to sell upon a mini retracement.

Investors can plan ahead and respond to price movement accordingly with If/Then mindset.

Benefits of If/Then mindset

Believe it or not, there are many benefits if you are able to build up your If/Then mental skill:

(1) Early Anticipation of Price Movement

Training your If/Then mental skill will help you to anticipate price movement effectively.

We can never predict with absolute certainty where the price of a stock will move. However, we can use the If/Then mindset to anticipate the different possibilities of price movement, and devise our actions should any of the scenarios play out.

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(2) Reduce Mental Stress & Emotions in Decision-Making

By simulating the possible outcomes prior to price movement, an investor could plan ahead of what could be done should different scenarios play out.

This might look like a simple thing, yet it is extremely helpful in reducing any form of emotional bias (eg. Fear of losing, Ego) and mental stress in comparison to the times when you have to make an immediate investment decision on your feet.

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(3) Improve Consistency in Investing Performance

As you make progress in developing your If/Then mental skill, you can expect consistency in your performance.

Reason being, a strong If/Then mental skill will provide you with a consistent execution process (eg. If A happens, then I will do X) by filtering out a lot of unnecessary biases involved.

We can never predict with 100% certainty what will happen, but we can always anticipate the possible outcomes and respond accordingly.


How to Apply If/Then Mindset in Investing & Trading

By now, it should be obvious that If/Then mindset is a mental skill that is applied prior to making any investment decisions.

As such, most application of the If/Then mindset should be done during the preparation phase of your investing workflow:

If you are a fundamental investor (read: Value Investing), your If/Then mindset could be “I will only invest in a company IF it has a consistent profit growth over a 5-year period”.

If you are a technical trader, your If/Then mindset could be applied in a way IF price movement A happens, THEN I will do X”.

In short, practice and apply the If/Then mindset BEFORE you have to make any investment or trading decision live.

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"If A, then X. If B, then Y. If C, then Z."

No Money Lah’s Verdict:

If/Then mindset is a mental skill that is crucial for an investor or trader’s development to perform better and more consistent in the market.

That said, many tend to undermine the practice of this skill as it seems to be simple. However, ask yourself: How many times have you ever go through the If/Then thought process before making an investment decision?

If any, the If/Then mindset does not require one to be right at predicting the direction of a price. Rather, it trains a person’s mind to anticipate and be open to different possibilities of outcome and respond accordingly.

Personally, I think this is an important skill to develop, and one that I strive to improve on a daily basis.

I certainly hope you do, too.


Read my articles on REIT Investing HERE.

Every now and then, I organize sharing sessions to share insights on how I invest in the market. Book your slot for my upcoming session HERE!