I have seen Money Mind this weekend on TV. It mentioned that Real Estate Investment Trusts (REITs) offer something like 7% in yields.
Calculation of yield on REIT is based on CURRENT market price of REIT traded in the stock exchange. But when we base on the price we bought this REIT, the yield can be vastly different.
Let’s take my example of REIT I own.
Keppel REIT
2023 Total Distributions per unit = $585
CURRENT price of REIT = $0.87
Total units of REIT owned = 10,200 units
CURRENT investment value =$8,874
Calculated Yield = 6.59%
But my costs of buying 10,200 units = $13,362
2023 Total Distributions per unit = $585
Calculated Yield based on cost of purchase = 4.37%
The attractive yield belongs to those who buy the REIT NOW. As for existing holder of REIT like me, the yield drops from 6.59% to just 4.37%.
The reason is that the valuation of Keppel REIT has dropped from $13,362 to $8,874.
Buying into any asset, for example REIT, we are subjected to fluctuation of valuation. Valuation can go down because of many reasons, one of which is POOR market condition for real estates. Another is POOR investment strategy by the REIT Manager. There are examples of REITs collapsing. Advice is that there is no such thing as permanently sure-win investments. We have to accept that investments carry risks and whether we can navigate such investments successfully.
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