3 Dangerous Myths About Singapore REITs That Could Hurt Your Returns

Core Viewpoint - Real Estate Investment Trusts (REITs) are popular among Singapore investors for their steady dividends and low volatility, but misconceptions about their functioning can lead to poor investment decisions and disappointing returns [1] Group 1: Myth Busting - Myth 1: High Yield Means Better - High yields can indicate elevated risks rather than being a sign of a good investment [2] - A REIT's yield is calculated by dividing annual distribution per unit by the unit price, and rising yields can result from falling unit prices rather than increased payouts [3] - For instance, Lippo Malls Indonesia Retail Trust (LMIRT) saw its yield spike from 10% to 36% as its share price dropped significantly, leading to unsustainable payouts [5] - In contrast, CapitaLand Integrated Commercial Trust (CICT) maintains a consistent moderate yield of around 5%, backed by stable occupancy and prime properties [6][7] Group 2: Defensive Nature of REITs - Myth 2: All REITs Are Defensive - Not all REITs are immune to market swings; their defensive nature depends on property type, tenant profile, and lease structure [8] - Sectors like hospitality and retail are highly cyclical and can significantly impact a REIT's income during economic downturns, as seen with CDL Hospitality Trusts during the pandemic [9] - Conversely, healthcare REITs like Parkway Life Real Estate Investment Trust have shown resilience, maintaining steady dividends even during challenging times [10][11] Group 3: Growth Expectations - Myth 3: REITs Can Grow Forever - The belief that REITs can achieve never-ending growth is misleading; growth is contingent on access to capital, quality acquisitions, and economic conditions [12] - Rising interest rates and higher cap rates have led many REITs to slow down acquisitions and experience stagnation in distributions per unit [13] - Investors should prioritize companies with strong balance sheets and disciplined management over those focused solely on aggressive expansion [14] Group 4: Investment Strategy - Quality Over Quantity - Investors should focus on quality sponsors, resilient asset classes, sustainable payout history, and disciplined capital management to build a strong REIT portfolio [15]