D.I.Y GUIDE TO: WINNING WITH REITS 1 D.I.Y GUIDE TO: WINNING WITH REITS Copyright © 2017/18 by Chlorophyll Inc. All rights reserved Published by Chlorophyll, Inc., Raffles Place, Singapore All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non- commercial uses permitted by copyright law. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. 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For general information on our other products and services or for technical support as well as permission requests, write to the publisher, at https://www.facebook.com/ChlorophyllEdu/ 2 D.I.Y GUIDE TO: WINNING WITH REITS D.I.Y GUIDE TO: WINNING WITH REITS How You Can Develop A New Source Of Passive Income In No Time 3 D.I.Y GUIDE TO: WINNING WITH REITS To your journey towards financial freedom. 4 Content PREFACE ................................................................................................................... 8 TO YOUR FINANCIAL FREEDOM ..................................................................... 13 Introducing REITs ............................................................................................. 14 What is a REIT? .............................................................................................. 14 The country that founded REITs ............................................................ 17 Why you SHOULD invest in REITs ......................................................... 18 How much money can I make from REITs? ............................................ 21 Financial Freedom, Fantasy vs. Reality ............................................... 21 How do REITs Grow? .................................................................................. 22 The Glory of REITs ............................................................................................ 26 Retail REITs ..................................................................................................... 26 Healthcare REITs .......................................................................................... 29 Industrial REITs ............................................................................................. 32 Hospitality REITs (Inclusive of serviced residence) ...................... 36 Office REITs ..................................................................................................... 39 CHERRY PICKING YOUR REITS ........................................................................ 42 Cherry picking your REITs ............................................................................ 43 Smashing through a REIT’s Income Statement ................................ 43 Property Financing ...................................................................................... 47 Other points to note in the Income Statement ...................................... 49 Currency Matters .......................................................................................... 49 Confusion among Yields ............................................................................. 50 Deciphering a REIT’s Balance sheet and its financing practices ... 54 Gearing Ratio .................................................................................................. 55 Financing Practices ...................................................................................... 56 Raising Receivables ...................................................................................... 58 RAPID FOCUS: BUILDING A STRONG REIT PORTFOLIO ....................... 61 Quick and easy way to screen for potential REITs .............................. 62 Enhancing your returns –The Secret Investment Strategy ........ 67 What to understand before implementing any method .............. 69 Right issues, to buy or sell them? ................................................................ 71 Basic rights ...................................................................................................... 71 To Buy or Sell the rights? ........................................................................... 71 BECOMING YOUR OWN PORTFOLIO MANAGER ...................................... 73 How to tell if my REIT made a wise buying decision ......................... 74 Aiming for “yield accretive” ..................................................................... 74 Truly yield accretive .................................................................................... 77 Yield Accretive or not, let’s look at the reason ................................. 78 How to value REITs ........................................................................................... 80 The 2-step method to value any stable REIT .................................... 81 The Dividend Discount Model (DDM) made easy ........................... 87 Managing your REIT portfolio well ............................................................ 89 Tip 1: Focused Reading .............................................................................. 89 Tip 2: What to do if you see these negative changes ..................... 90 Tip 3: Hand phone APPs to help you track your REITs performance .................................................................................................... 91 SHOW ME THOSE MONEY MAKING REITS ................................................. 93 Finding Winners in peculiar places ........................................................... 94 Haven for REITs unitholders? ................................................................. 94 Tease me with 3 interesting REITs ....................................................... 95 Tease me with another 3 exclusive REITs ......................................... 97 End ...................................................................................................................... 98 Question & Answers ........................................................................................... 101 D.I.Y GUIDE TO: WINNING WITH REITS Preface My story I made my first proper investment in 2008 when I was in the forest, training with my Army mates. That was the year also known as the “great recession”, where the talking point on every investor’s mind was the fear of who would default next. Just like the rest of the investing world, the thought of losing my hard-earned money in an instant made me hesitant to make my first investment. Back in the Army, there was a saying: “Great victories lie not in falling, but in rising every time we fall.” Although the quote referred to one’s determination and not “investment wisdom” per se, it gave me that extra nudge to invest back in 2008! I rationalised that if I did not put my savings into investments, where else could I put it? Definitely not in a bank, bonds or mutual funds where the interest rates and returns were horrendously low (and still are); I needed to make my savings work harder and realise my dream fast. But how would I start? How would I know which stocks to pick? I found my answers through reading and understanding the many books, articles, and journals on fundamental investing and formed my methodology for picking undervalued stocks. 7 D.I.Y GUIDE TO: WINNING WITH REITS I decided to test this methodology, and managed to find a single stock that fit all my criteria. Turning theories into action, I decided to press the “Buy” button on my trading screen. The transaction was fulfilled, and I became a shareholder, an owner of the business. That thought made me feel accomplished. Then seconds later, the price of the stock fell further, much to my amusement and annoyance. Now looking back, the feeling of regret overwhelms me, not because I bought the stock but rather because I didn’t buy enough of it. You probably have already guessed that my very first holding stock was a REIT, and it has given me consistent annual yields of at least 11% since 2008. Fast forward to my university days. I was fortunate enough to enter one of Asia’s most prestigious business schools where I had the time of my life. I had easy access to so many financial databases and research articles, as well as Bloomberg and Reuters at my fingertips, and I was surrounded by professors, industry practitioners and investment-passionate friends from whom I could learn and gain insights. I had plenty of time to refine my methodology to screen for REITs and other undervalued companies. Despite a few bad investment picks, I had managed to build a decent portfolio of stocks and REITs that were delivering solid results year after year. The dividends that I received in the 8 D.I.Y GUIDE TO: WINNING WITH REITS financial year of 2013 were enough to fund my entire graduation trip to Japan! Workforce In the workforce, I realised that working life can take a toll on you. The people around me were different, and their priorities changed. Topics of interest among many of my working peers were how to make ends meet or why the government always seem so adamant in moving their ends further apart. Jokes aside, some of my colleagues who have worked for over 15 years were unfortunate enough to become victims of their unwise investment decisions. That is terrifying to hear – to realise that so many years of your hard-earned savings can be wiped out in just seconds. The reality of working life has led me to realise these painful truths as to why so many are not investing prudently: 1. Too much sight, too little mind There are so many headline-worthy books out there teaching people how to invest. But many of these books are theory- focused rather than application-focused. Just pick up any investment book and it is usually more than 100 pages long, full of theories shrouded in paragraph after paragraph yet not getting to the point. After a while, the busy individual will likely lose sight of what he/she has read and not apply the techniques and tips they have learned. 2. Poisoned by growth 9 D.I.Y GUIDE TO: WINNING WITH REITS A lot of individuals out there are obsessed with beating the market by constantly searching for the next Facebook or Google. That growth is certainly important, but people forget that monitoring a growth portfolio requires much effort and time. Unless the individual has outsourced the investment monitoring elsewhere, my stance is that the busier the individual is, the more passive the personal investment portfolio should be. 3. Not understanding what is being invested Lastly, people usually lose money because they simply do not understand the risks behind their investments. From Collateralised Debt Obligation (CDO) to currency trading, time and again people forget that it is usually the stable and boring stocks that bring you excellent returns, albeit slowly. Purpose of this ebook Taking all these realities into consideration, I am exhilarated to share with you my investment methodology on how to select performing REITs, and also bring forth a portfolio that can be easily managed and generate a secondary income for you. That is why quotes are strategically placed in the book to help you better understand the chapters. I must mention the quotes in the book as they contain the investment wisdom that was painstakingly gathered from industry practitioners. Putting them into practice has done miracles for my REIT investments and should do likewise for you. 10