Is It The End To REIT-Investing?

On 15th February 2024, Keppel Pacific Oak REIT (KORE) spooked the market by announcing that they will suspend dividend payments for 2 years till 2026, due to the tough operating environment in US Commercial Real Estate currently and hence a possible further decline in valuation in the upcoming quarters.  For readers who are interested to know the details of this event, you can watch this video by Dr Wealth.  Nonetheless, this caused the share price of KORE to plunge by 40% in a single day, and the undesirable effects rippled through all US Commercial REITs, bringing Prime US REIT down by 32% and Manulife US REIT (MUST) down by almost 7% (previously Manulife REIT's troubles had caused it to plunge by 67% from July 2023 to 15th February 2024).  Even United Hampshire US REIT, whose properties deal with groceries, necessities and self-storage were impacted, falling by 4%.

Prior to this issue by KORE and MUST in July 2023, another most impactful event was the suspension of Eagle Hospitality Trust (EHT) back in March 2020.  However, do note that it is unfair to compare the problems in EHT, which is criminal in nature, with those currently faced by KORE and MUST.  However, the common red flag that they presented are the high dividend yield before the problems surfaced.  EHT had a yield of 25.4% yield before suspension.  MUST, based on trailing twelve month dividends (USD 0.0475) and share price at USD 0.169, had a yield of 28.1%.  KORE, based on trailing twelve month dividends (USD 0.0319) and share price at USD 0.250, had a yield of 12.8%.  

With the latest earnings, things do not look good for Prime as well, as the gearing has shot up above 48%, and a massive cut of distribution per unit of 90% once again shows the unsustainability of high dividend yield.  However this is my personal opinion which investors disagree, as they believe that Prime's performance is better than MUST and KORE, so it's share price shot up by more than 40% after earnings release within the day.  Once again, it shows that fundamentals aside, share price performance is all about expectations versus reality.

With respect to the above issues, I like the various analysis and insights by the following bloggers from various perspectives:

1)     Investmoolah

2)     Grow Beansprout

3)     ViresInSolitudine

4)     Dividend Passive Income

5)     The Asia Report

6)     MyStocksInvesting (on MUST)

Personally, I am not a shareholder of any US Commercial REITs, but nonetheless, I am a self-acclaimed dividend investor, with approximately 86% of my total portfolio in SG Dividend Portfolio, out of which 56% of my capital are in REITs and Trusts, and about 30% of my capital are in Non-REITs.  As such, performances of the REITs are important to me.  Although I am a dividend investor, I am not a yield chaser.  I do not buy dividend stocks, REITs or Trusts solely based on the dividend yield.  This may be counterintuitive to others, because isn't one seeking yield when investing in REITs?  Undoubtedly, on the surface, the higher the yield, the better it is because for an investment that generates 20% yield per annum for instance, it takes a short 5 years for you to get back your capital solely based on dividends, while for an investment that generates 5% yield per annum, it takes a long 20 years for you to get back your capital from dividends.  However, one important question investors should question themselves is "how sustainable is that high dividend yield going to be"?  On the flip side, it is also untrue that high yield equates to bad investments.  There are times where a company's share price plunged due to some temporary bad news, causing the yield to shoot up to high levels.  If the company's fundamentals remain strong, these times are actually opportunities.  All these boils down to what kind of risk-reward ratio can you handle?  Investors should do their own due diligence and from there, make your own decision.

For me personally, strong sponsor, stable performances, interest coverage ratio and income visibility are more important aspects.  I prefer hands down earning a consistent and sustainable dividend return year after year, and not having a situation where the yield gets higher and higher because the share price is declining at rocket speed.  Earning high yield at the expense of capital loss is definitely not in my plan.  As such, the REITs in my portfolio are the boring and unexciting CapitaLand Integrated Commercial Trust (CICT), CapitaLand Ascott Trust (CLAST), Frasers Logistics and Commercial Trust (FLCT), Mapletree Industrial Trust (MIT), Mapletree Logistics Trust (MLT), Mapletree Pan Asia Commercial Trust (MPACT) and ParkwayLife REIT (PWLR).  Out of these REITs, my highest conviction REIT is ParkwayLife REIT, with income visibility, stable improving distribution per unit year on year since IPO.  I have discussed why I like ParkwayLife REIT so much two years ago in this post, despite it being an overvalued REIT with high PB ratio and being the REIT with the lowest dividend yield, at between 3-4%.

Of course, in such high interest rate environment, my portfolio was not spared.  I am not suggesting that my portfolio is superior, and I believe everyone knows, ever since the interest rate hikes began in March 2022, every REIT and Trust in my portfolio has fallen between 8% to 20%.  Personally, I think I am contented with average yields with average portfolio.  I need the peace of mind to be able to sleep well at night, not having to worry about whether any of my investments will plunge by 70% or more, and this is the kind of risk-reward ratio I can handle personally.  Of course, it is still important to invest in any share/ company/ asset that you have confidence in, after doing your own due diligence.  Additionally, you should also be investing with monies that you have no immediate need for.

In short, I think REIT investing is still relevant, as high interest rates will not remain high forever in my opinion.  It is cyclical, just like any businesses out there that are cyclical in nature, such as banking and even oil and gas industries.  I believe the responsibility lies in the individual investor.  Optimize your asset allocation, handle your risk-reward well, and all will be fine.  Continue to remain nimble in your investments, look out for any red flags constantly in your investments and that will give you a peace of mind.  For myself, I will continue to scrutinize the results of MPACT and FLCT, to ensure their operating conditions continue to improve, or at least do not worsen further, at least based on the grading system I shared in this post.  Barista FIRE, here I come...!


  1. Hi Baristafire, thanks for the mention of my recent post on KORE….haha. How have you been mate? Yup, the SREITs valuation generally went down the drain again in recent weeks even for the Mapletree and CapitaLand family.

    Very well said indeed on the peace of mind to sleep well at night. I am trying to move away from my intense concentration in SREITs to other stocks/bonds. Good thing is the blue chip REITs still holding up well in terms of dividends payout overall.

    Let’s keep our fingers crossed that the storm will blow over soon and Huat AH for 2024! Take care and may you be well and happy always!

    1. Hi Blade Knight, great to hear from you!
      I am ok I suppose, portfolio is still surviving. Same here, I think I should reduce my allocation of REITs in my portfolio. But I am probably not selling any of them now, because their share price are at the lower spectrum currently.
      Probably what I intend to do is to reinvest the dividends from REITs into other shares, instead of reinvesting into the respective REITs. Currently thinking about investing the dividends into UOB and DBS after they XD, so that hopefully I can enter at a lower price range. How this works out remains to be seen, will update in future posts.
      For the REITs, the only turnaround play now is interest rates. The day the interest rates cut come to fruition, is the day REITs start to see some light.
      May that happen in 2H 2024, and huat till 2025. Take care as always!


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