REITs workshop - Part 1: presentation

Start. Sorry for the delay, but with some technical issues with the door. Thank you for being here. I'm very happy to see so many of you at this time. I'm sure you may have other things to do, but the fact that you are here means you want to learn something new. So we can start. As you can see, we have three numbers here. Any idea what do you represent? Okay, which one? Right below. Yes, this is related to dividends. Well, you will know at the end of the presentation. Very well. Was the average year? No. I mean, it could be. Actually, yes, but it's not before starting, Just out of curiosity, how many of you have invested in REITs before? Or they know what REITs are. Can you? Okay, only so all the others, they are not the REITs. So just to give you a short overview, when you invest in real estate, in properties, you need a lot of capital. It's not easy, right? So REITs is an alternative. You can still invest in the real estate market through REITs, where you don't need a lot of capital and you have many advantages that I will show you later. So basically, REITs is a way to access the real estate market. And here we are speaking about Singapore. Okay, now the first number is the number of REITs listed in the Singapore Stock Exchange. Because REITs are not like physical properties, they are companies. Okay? So they are listed in the stock exchange. Means you can buy and sell shares of REITs. And why is it good news that we have 40? Because 40 is not a big number. Can you imagine if you have to analyze like the thousands of stocks the US market, but here you have not even 40, so you can save time. It's not a long list, right? Hundred. This is the minimum number of shares that you have to buy when you invest or trade in the Singapore market. Now, the radio price for REITs is usually, well, not zero, but something about zero to less than $3. Less than $3 means that already with $300 you can access the real estate market. Which property can you buy in $300? Nothing. You need thousands or millions, right? So this is already a very good advantage. And as someone say, yes, this is the passing income you can get with dividends from REITs. That is also higher from what you can get with physical properties. Okay, now before starting, I have to show you the disclaimer. Because I'm not a financial advisor, everything I say is not a suggestion to buy or sell anything. Okay? So I can share with you something. If you lose money, it's your fault. If you make Money I will lose. Okay, now this is the outline of the presentation. The first part is the basics of REITs. So what is a REIT? How they work and the types of REITs. Because we have different types. Secondly is the analysis. How can we choose out of these? Less than 40 reads the right ones and we will see something related to the fundamentals of the reit. So how strong is the company behind and the technicals, meaning the sentiment of the people about a particular company. And then we have the practice. That's why I ask you to install some software and to bring your laptop. If you have not done, it's okay, we will do it here. But I share with you a slide objectives that you can use to evaluate from it. Okay. By the way, I may ask you to complete some of the sentences that I start during the presentation. So please do it because you learn better when you participate activity. Now let's start from the basics. So what is a reit? As I said, is a company listed in the market. But it's different from the normal companies. You see, the normal companies, they take the money from the investor to improve the business, to grow and risk. No, they use the money of the investor. For what? To buy and manage properties. That's what they do. They take money from investors and also from banks. And with this money they buy and manage properties. That's the difference from a normal company. Why they do that? Actually, no. Why is it good for us that they do better? Because at least 90% of the rent that they get from the properties they are managing is given to us as investors as dividends. And this money in Singapore is tax free. So it's good, you get dividends, passive and taxable. And what is the advantage of REITs compared to real estate? The normal property, okay, first is more liquid. Imagine you have a house worth millions of dollars. Then you need the money immediately and you want to sell it. Maybe you don't find in it someone willing to buy at the price you. Maybe you have to wait months, right? But since REITs are listed in the stock exchange, it's much easier to find someone willing to buy your shares. I mean, provided that you want to buy it at reasonable price, then it's more diversified. When you buy a property, it's one property, that's all. But when you buy a reit, a REIT is basically a company managing a portfolio of properties. And they can be Singapore and overseas, and they can be of different types. So it's more diversified. Then you need less capital. We have seen already There and taxes are lower. Actually no taxes on dividend. So what is the structure of the reit? Well, here on the left, you see the investor like you and I, you invest in a reit. So you give money, you buy the shares and REIT also can get money from the bank. Okay, what do they do with this money? Well, there is. The main objective is to buy properties. Okay. And after that of course the return management that is managing the REIT and they charge into some fees and the real trustee, someone checking that everything is done in the interest of the unique holder. Or at least now types of reads. There are five types of reads. How many? Okay, thank you. Retail read. What is retail? Retail is basically. Basically mo here I don't know if you can see, but that is J2 in. In. Then we have industrial hospitality. That doesn't mean hospitality. Okay, Hospitality is hotel. It's not hospital. Hospital. Is that die health? Okay, and finally office. So let's have a look at these five types of treats. Retail. Well, retail, they focus basically on shopping malls mainly. And some examples are Capital Mood, is that guy owning the JQ and sph. Sph, if you don't know, is the company owning the Clementi model? Okay, industrial. What about industrial? Well, the focus here is different is where houses and business parts. And these are a few examples assemblage 3 that by the way, I think is the largest in terms of market cap in Singapore and Maple Tree in. Then we have hospitality. As I said, it's hotels, not hospitals. And a few examples are Ascot and Ascendance Gate Stores office or sometimes they are called commercial near the focus is office buildings, of course. And again a few examples, some take or capital commercial trust and finally healthcare. The focus is hospitals not only, but mainly and with examples, actually there are only two. First rent and parkway Life rent. Now health care and retail are somehow more defensive. Okay. Because even if there is, let's say a recession, people still go to the hospital, right? And also for a day is very like the switching cost for people to move a shop from a mall to another one is a little harder than for example moving your office to some other building, right? If there are many empty buildings. So this is something also to consider. Okay, what about.

Yes, why there are no reason for millions of bad houses.

Or actually there was one REIT residential, it was called the size and reit but it was delisted. He was the only one and he was investing in properties in Japan and eventually it was delisted. But maybe Singapore is not something popular. I don't know. But these are the only five. Yes. So of course there are also some. There are also some. Actually only this one. It depends if they invest only in Singapore or overseas. Of course, I will not touch much about that here because we only have one hour. But something that you may check is also if the REIT you are buying, even though it's listed in the Singapore Stock Exchange, it is owning properties in Singapore or overseas. For example, There is 1/4 movie listed here, but it's basically owning properties in Hong Kong. Okay, what about analysis? Well, there are two things we need to care. Number one, what to buy. And this is the fundamental and technical is when to buy or sell. Okay, now there are four things that we touch here related to the fundamentals. How many? So the first one is the gift ratio. What is that? It's basically the level of debt. I say that the beginning, that tariff is also taking money from the banks. Right now the ratio between the borrowing and the asset is called giving ratio. And why do we care about that? Because if this is too hard and interest rate increases, then what happens? That the REIT must pay more, right? In interest. So if this is too high for the reit, it may be a problem to pay back. They may even have to sell properties to do that. And you can imagine that as a consequence the stock price will be dropped. So we don't want. And this is the criteria we use less than 36. Some people say less than 40, but I'm a little more conservative. Less than 36. Why? Because it is too high and there is an increase of interest rate. We may have problems. Number two, dpu. What is dpu? Distribution per unit. So it's basically the dividends that you get for each share that you own is the passive income is the way the REIT take the rental and give back to the investors. Okay, and for every share, the amount of money you get is called dp. Why do we care? Well, because this is what tell us how profitable is our investment? Investment. And here what is the criteria? Of course, we don't want a REIT that is paying less and less money. Why would you invest in someone that is giving less and less? You want some REIT where the distribution per unit is stable at least, or even better if it's increasing. Okay. Number three, yield. What is that? Well, this basically the annualized GPU. How much you get as dividend in one year over the share price is the 5 to 7% that goes in the first line. And basically this is another way to quantify the distribution per unit that you get with a number and it's relative to the share price. So you know that, you know I pay this to buy the shares, I get this, it's 5%, 6, 7, 8. This can make the difference when you choose one instead of one. What is the criterion here? Well, you would like to get at least 5.5% in my opinion. Why? Because there are other ways to invest in REITs that give you maybe a little less than that. But if you do the effort to do the analysis of your own risk, you should get something more. I will share with you later. There are ETF tracking risks, but this is last one, price over nav. Okay, what is the nav net asset value? Okay, so basically it's the value of the the REIT for REIT share. And basically when you compute this ratio, share price over N and D is a way to understand if you are paying too much for the REIT or not. And actually yes, it's telling you if the REIT is overvalued, fairly valued or undervalued. And since here the focus is investing long term, non trading, we want to buy something when, when it's not overvalued. Okay, and the criterion is what possibly less than one, one is fair price. Okay, so you're basically paying for what you get. But this is not really safe to check because there are some REITs that never go to one, for example health care REIT, they are always above one. So it's better to check these compared with the historical high and low to get a better idea about over or under the link. Okay, because let's say you, you use this less than 1, you will never vibrates in the healthcare sector, for example. Okay, so this was for the fundamentals. Now how many of you know this are familiar with the endosp? Okay, when you look at the chart we are now in, the technical fundamental is done. When you look at the chart of your stock, you may have seen these things, right? Sometimes instead of green they are white. What is the meaning of these Japanese candles? So the meaning is this. Let's say that this candle represents one day, okay? This, the low of the shadow is the lowest trading price for that day. And the high is the high of the shablow. And this is the same for the green of the red. So what is the difference between these two? It's the body. So the green one, this is the open price and this is the closed price. What does it mean that that day the market opened here and closed above. So the price went up, so it's called bullish candle. On the other hand, the red one. What is the meaning? Well, the price opened here, but closes here. It means that that day the price went down. And that is called bearish candle. So you need to be familiar with this because when you look at the chart, usually you have this. So you must be clear, what is the difference between bullish and bearish candles? Okay, now usually there are three. These are the candles here you have white instead of green. But it's just a setting of your software. I don't want to share too much about technical analysis because no, I don't think it's the time. But just a few simple things. When you look at the market, you may have three main type of patterns. You may have a consolidation. So the price is moving like that between two levels that are usually called support and resistance. Okay. And what happens is that sometimes when you have this situation, yeah, you see the mark, the price is hitting here and going back and so on. It doesn't mean that he will keep doing that. It's just that when you are in this phase, it's more likely that the price will move like that for a while. So this is called consolidation. And basically you have the same low and the same high. Then you have the trend uptrend. So what is the thing here? You see that now support and resistance are now horizontal and they are going up. So you have higher low and higher line. So for this is really simplifiable. It's just to give you an idea about the main concept. And finally the opposite, the downtrend. So you have lower high and lower low. Okay, why is this important? Because would you invest in something like that? I mean, if you are, if your objective is to keep the stocks for a long time, to collect dividend, this is a good situation. The price is stable, right? And you keep getting the dividend. By the way, this bad year is when they pay you the dividends. So you keep holding your share and you get your passive income when it's going up. Even better, you even have capital gain in case you want to sell later. On top of the dividends. You also can make money because the price is going up. But in this situation, unless you have a really clear indication that the the price is bouncing back, it would be risky to buy when the trend is going down for it.

You cannot go short or like you cannot make more.

Okay, you can go short, but it will be trading. And remember, there is the risk. The thing is, when you go short you pay the limit. If you are shorting a REIT and there is dividend, right. The day when they pay, you have to, you have to pay to the person who give you the share to short. So for short term trading you can do it. But let's say you own the share here and you are shorting, then you have to pay dividends. But this is something more advanced, so I will not touch this yet. We can maybe discuss later about that. Okay, so what can you do to build a strong portfolio? So first you have to find good ways. And then we have seen the four criteria, right? Giving ratio is the level of debt they have with the bank yield and dpu. So DPU is how much you get as dividend per share. The yield is the percentage, right? Annualized DPU over price and the price over nav. That is telling you if the rate is over, under or fairly bad. Then we look at the technicals. No, sorry, look later we want to buy. We have seen, we have five categories, right? So maybe if you want to diversify, it is good to have a look at the best in each category. You don't want to buy all your REITs in the retail sector because if that sector is doing bad, all of your REITs will go down. I mean, more likely that they will go down together. And then when you use sell a REIT when there are two reasons why. Number one is because you see that the fundamentals are not good anymore. These things that we check here, they are not so good anymore. So you may sell because something's wrong, or you may sell if for some reason the price is going up so much that by selling at that moment you will make the money that you would make with dividends in maybe two, three years. So maybe better to sell and buy back later if the price is dropping. Okay, now you may say, okay, it's too complex. I don't want to spend time, I'm lazy. Right? What do you do? Well, there is another alternative. It's called raised etf. Are you familiar with ETF exchanges? Rated fund? No. Basically ETF is again something that you can buy and sell in the stock market. And when you buy a share of an etf, you are buying basically a share that is dividing a lot of REITs. So this ETF buys a basket of REITs. And by investing in the ETF you are basically investing in a basket of REITs. And what is the advantage? Well, diversification, but also starting July 2018, even in the end, what you get, the gain you get is tax free. Before it was not. Now it starts. And there are risks of buying the Singapore market, the Philips reit, the LIO and the nicos. But what is the problem? The yield you get is maybe less than this 5, 6%. That's why I was saying if your REIT that you choose is not giving you a yield that is better than this, maybe better, just go with the etf. And a way to invest if you are lazy is called dollar cost average, meaning after every three months, six months, whatever, you invest the same quantity of money in that India. What does it mean? If the share price is going up, you buy less shares. If it's going down, you buy more. Right, because you invest the same quantity like $300 every three months. Whatever the price. I buy $300 next three months, $300. Okay. And this is something that is possible to do if you don't want to do the technical analysis chart. You are confused. That's also a way. Okay, Any questions so far? No. So in case you were either very clear. Yes. Okay, that's a good question. The sign can be. Can be. So you have technical analysis. The sign could be some. For example, you see a strong bullish candle, right? Maybe there are some. You know, the Japanese, they like to be strange names to all these things. Like one white soldier Alani you can find online. There are a lot of strange combination of candlesticks that indicate are in their sun. But I can share with you more. I mean, I don't have it here in this presentation, but there are some combination of candles like maybe a red one and a white one higher or something like that that can tell you that. Yeah, maybe the price is starting to buff fair.

So this 5 to 7% divide you showed at the beginning, that's like depending on the. On the share price of the D. Right. So the share price varies over time.

Yes.

What does it depend upon then? Because that's a big question, Right.

What is the reason why the share.

Price increases or goes down? Yeah, because that's a big question.

Okay, the thing is this, usually after dividends you have a drop in shares because. Okay, you know, it would be easy to say I just buy before they pay the dividend and I sell after that. Right. It's not so easy. Usually at that moment you have a drop in price. So it's already like the dividends is already taken into account in the share price. If you have a bad news, you can have a drop, of course, but in general is the sentiment. Let's say that the overall sentiment is People don't are not. Or maybe the sector is not doing well, maybe the office sector is not doing well. And then you may have prices going down. So from a fundamental point of view, it may be related to less income occupancy rate, it can be dropping. You know, maybe you have offices that they cannot find equal to.

So it's related to the rental price of the office.

It can be one reason, but it can be also the sentiment. There are many reasons. I mean, if you know the answer, then because, I mean analysts can come up with a lot of ideas. But yeah, it's not clear. Right. It may be fundamental reason, it may be technical reason, it may be like the sentiment. Or it may be that the economy is bad, people are. Or maybe, you know, some big investors are moving money the rotation of sector. So it can be many things. But we are not trying to predict what will happen. We are just following some rules that we defined before and avoiding dangerous situation. Okay, so do you want to have a 5 minutes break or no? Okay, now practice. The reason why organize this workshop is easy. I want to share with you free tools that you can use to screen and check information about risk. You don't need to pay anything. That's a good news. You have only 40 and you have free tools. So for screening we need to find all these criteria. 36% and we have this. You should have received an email and I say that you may create an account. It's free. If you have not done no problem, we will go through this. But this is one example for Singapore. I don't know for US market but for Singapore this application is fine. For charting I suggest chart Nexus and when installed you can select a market and in the May I say choose the Singapore market. And this will be with three years of data free. That's why I think it's quite good. And I say that we should check the historical price over at any. Because just say above one over value. Below one under value is not really the best. Where can we find that? Partially on the first one. But there is also a website that will show you later where you can find this. Are updated every month. Okay, so I think we can go to the practice session where I will show you these three tools. Okay, I want to start with. This is the screen. Now do you have this? I mean if you have your laptop you can, you can assess. But basically what is this? This is the list of REITS names. This is the ticker. If you want to check the chart online, you can use this code. This Is the sector. Okay? And here they tell you the share price, the yield gearing price. This is related to the historical price nav. Market cap is basically the number of shares times the price. And if the market cap is big, usually it's more stable. And this is quite interesting. If you click here, you will find different information about the reit. And the most important in our case is D. Instead of having to go through every quarter report to check how much they pay as dividends, you click here and you have a chart already done for free. So I want to show you, for example, if you click here, what happens. You will see from 2008, this is how much they pay as they did. And there is information here for free. And I want to show you one case that is to me is very interesting is the Savannah. Okay? If you go online and you check this rate, you know what you see? You see a chart that is going up like that. And then you check here and it's going down. Why? Because you know what they did when they prepare the report? Instead of showing the dividends they pay every time, they just show the sum. The. So what you see here is whatever they pay so far plus the new one. So of course it's increasing. But it's just to. I mean, I'm not saying cheat. It's like a different way to represent information. So if you are not careful, you think it's good, but actually it's not. And this by the way, is something that you don't want to invest in this guy. Why? Because you see they are paying less and less and less. Less.

And to the beginning only. So way less than. Sorry, at the beginning it was also way below your threshold.

Right? Another number? No, no, this is the dividend they pay. There is no threshold for that. It's just checking if it's stable or increasing. That's the dividend pay off. Okay, so what should we, what can we do here? First we can screens. For example, let's say we want only those where the yield is 5.5. You can check on your laptop. If you write here 5.5. Okay, you only have those from 5.5. You want the giving less than 36. Here you write here 36 and it's already screened out. One second. If you have to do this manually, going through the record of every single one, it will be a pain. And these data are changing by the way. So you do it today, in one month, maybe you have to redo. But if you do it like that, it's very easy. So Here we have already checked two of the conditions, right? And then we have to check the dividends for some new reads. Of course they don't have enough data. But I would avoid investing in very new REITs because you don't have history, you don't know how good they are. And if you want an indication about the historical price over nav is this, if you look here, they say that this is based on the price of your NAV for the last year. So you want to invest in something greater than A or B, maybe not D. Now I want to show you something else that you can use to check the historical price over nad that if you look at your checklist is the condition number the 2 point B. So this one can be used for the 2A, 2B and 2.6. Okay. If you look at the objective, the 2 point B, the DPU, you pre convenient. Okay. And you check the chart price over NAV, you can go to this website, mystockinvesting.com it's on my website. But what is interesting here is that if you click on REITs and here Singapore REITs arrange chart, you see, then you get this nice chart, right? And then you can see the current price over nav. And this bar represents the range low. I, I think it's one year. So for example, you want to buy something, you want to buy this. No, because it's very overvalued, right? So this gives you an idea like this maybe. Okay, I can consider this. This, this is already starting to be overvalued. Also this, this one is very low undervalued. So this gives you an idea about the real valuation. And if you look at the header section, as I say, you see that it's never below 1, the rate is always above 1. So that's why I don't feel that looking at the abstract number one as a reference is really a good idea. Okay. And finally we have the jumping software, right? So here you can see if you log in your candles and issue point here on the back they tell you the dividends that were paid. But of course you don't have to look at all this because you will be already in the website and you can create watch list. I have one with threes. But just to show you the savannah that I showed you before, right? You see what's happening here? This is the one where the DPU was and it went down a lot. Now it seems it's kind of consolidating, but already we will not invest in this because the dividends they are paying was going down so now what I suggest for the last 10 minutes we can take a risk and go through this list okay so we can together check and see how you can do this for analyzing a ring of course it was simplified as I said the disclaimer don't do this okay okay can you buy that lose money no but that's at least to give you an indication and possibly avoid those like these that maybe you don't want to touch I mean I hope there is no value opening subana. So what can we do let's take let's take for example. And by the way if you click here you can sort by type this one capital retail channel okay okay 7.28 yield quite good is less than 36 okay let's check the dividends. I would say it's quite stable I mean there may be some small dip is fine but just the overall trend should be stable or wind so what can we do we can feed this form Are we doing that weather so the name of the reef is we can check here right this capital intent Chinese.