Investing in REITS

I've done a lot of research on REITs investing this year. In singapore, a very profitable reit i invested in was suntec reit. I bought at 1.16 and now the price is at 1.62. REITS have generally performed well in the Singapore market this year with an average return of 37.5%.

REITS are actually easier to research on compared to other company stocks. REITS own and manage properties. They collect rental income from their tenants and distribute the income to the shareholders. In Singapore, REITS are required to distribute 90% of the collected rental to shareholders. Average dividend for reits are in the range of 6-7% annually.

The easiest way to value a reit is to look at its Net Asset Value(NAV). This value can be found in most of the reits' financial statement. It is calculated based on its assets - liabilities then divided by the number of common shares the reit has. This will give us the NAV per share. If the reit is trading below its NAV price, then the reit is said to be undervalued and its worth considering to buy.

Of course analyzing companies cannot be based on one component alone. We still have to look at its profit for the past few years, its cashflow and also its business structure and strategy. If a reit has good expansion plan without taking too much debt, then we can predict that its profit will increase over time. This gives us reason to invest in the reit.

What will be the performance of reits for the next year in 2013? From my analysis, share prices of reits have increased a substantial amount this year but some are still undervalued. For exmple suntec reit NAV is 1.97 while its trading at 1.62 now below its NAV. However, historical stock price of suntec reit tops out below 1.80 and seldom breaks above it. In Singapore, property prices are hitting record highs and many analyst have warned that property prices may cool in 2013. However, commecial property prices are still doing good and as long as the Singapore economy continue to be healthy, reits that own retail malls and commercial offices should still do well.