REIT-TIREMENT - REITs Investing & Personal Finance

REITs investment & personal finance


Sunday, July 05, 2020

Is REIT Analysis Really Necessary ?

After recent posts on SREITs analysis, there is 1 question comes into my mind: is REIT analysis really necessary? This is a question, (or rather a statement) in which two experienced investors (also bloggers) told me straight to my face a few years ago.
I can still remember clearly the key comments as below:
i ) Why do you have to study so detail for REIT?
ii) No one research REIT in a detailed way like you, which is not required.
iii) REIT is ONLY for dividend, if you accept the yield, just buy it. And THAT IS IT.
iv) You are spending (wasting) too much time in REIT analysis, which is NOT necessary.
They may not remember what they've said, but I do. I did not voice out to defend my view then, because I know by doing so would only reinforce their view. From their extremely confident way of speaking, the capital gain is the ONLY holy grail in investment gain.
my mind at that point of time
Let's not go into whether they are right or wrong, profitable or not. The fact they undermine one's effort is simply not constructive to help others to grow. Fortunately, I did not follow what they've said, else I would not have started this blog to share my experience. 

I have an analogy that I'd like to compare with REIT analysis. It is like a student study for an exam. The more he/she study, the "higher" chance to score well. Study more could increase chances to score well, but not certainly will. However, it should not serve as an excuse for not doing so. Often, the more I learn, the more I realized how much I don't know. 
Okay, let's conclude it, I totally disagree with them. Same as per stock analysis, REIT analysis is required as well and it should not be done just on the surface. REIT business model is simple to understand, but the analysis is certainly more than just checking on DPU, yield, NAV, occupancy, or gearing ratio. Hopefully, my blog could provide readers with ways to look beyond the surface.

6 comments:

  1. Jiayou! Analysis is always required; albeit different extent and amount. Reit is still easier to analyse compared to stocks, becoz the financials are more straightforward. Properties is what we can see too 👍🏾 How else do you tell if a business is selling well? Or fulfiling their contract book values

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    1. REIT is considered as 1 sector, so financial statement is similar. Once you go through few times, you will definitely get more and more familiar to it. Same to other stocks, if you only analyze one sector, then you will get familiar over time. If you split "stocks" in to specific sector, then REIT is easier to analyze does not apply.

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  2. Hi Vince this is indeed a big question mark after reading thorugh your posts. Personally I think to not digging into the data and be quantitative is just because.. humanes are lazy. However I'd say your approach is just a great starting point.

    For example in https://www.reit-tirement.com/2021/06/how-do-i-conduct-fundamental-analysis.html the tiers (buckets and scores) are all variables which would have impacts on the final results. Without them being properly chosen, the whole methodology could be meaningless..

    One way I could think of is to use historic data to back test your models with say 10k per month to average in whatever counter your model deems good then hold it and by comparing your yearly PnL in the past or future years against a SREIT ETF or some benchmark? Then we could say this methodology actually works better. Alternativey we could use this way to explorer the parameter space to find the best set (might be pretty hard as this is a multi-dimentional optimization problem). Also which counter/how much weights to put to form your profolio are also questions need to be addressed (I think you prefer evenly invested in the 6 sectores). Last but not the least, those metrics realted to risk/diversification might not be manifested till something blows up in the future (black swan or greay rhino event). So if everything is normal, those metrics won't show value. Hence we might need a pretty long horizon to show value in your framework..

    I hope you can find time to show the reader some analysis on your actual results or some back test runs!

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    1. I do not run any back test on my criteria, as all these would depends on how you allocate your portfolio, e.g. when to buy, how much to buy, accumulate which sector, when to sell, etc. There are just too much variables which every decisions would affect the outcome.

      However, I do update REITs result often and fine tune those parameters every quarters. I would treat it more as a tool for me to view things objectively than a model holy grail. Is similar to dividend discount model, no one would back test the DDM method or say their inputs are perfect.

      I have to say, you really spend time to read my blogs from start to end, haha. Salute your effort.

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  3. Hi Vince appreciate all your hard work and prompt replies. As someone wanted to retire early and don't like US stock for many reasons, SReit seems to be the best options foe. Reading the books always teach methodology and criteria but there is no extracted historical data! I'm simply too lazy to pull out all quterly statements and read them.. tried to Google if anyone has done any DD on that even I'm willing to pay I couldn't find anything online. Your blog shed a bright light in this dark area as I clicked it via the sgx telegram channel. Kudos to your generosity and hard work! To show my tiny support I've clicked a few ads while reading the posts. Hope that helps!

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    1. Thanks or your complement, appreciate if you could help to share my blog to your like-minded frens. Is quite rare to see a gen z (I assume u are ??) want to retire with SREITs and don't touch US Stock.

      Thanks for clicking ads and disable ad-block while browsing my blog. If you are willing to pay, there are various SREITs subscription tools that you can sign up:
      1) REITScreener
      2) REITsCompass
      3) REITSWEEK
      4) Kenny REIT Screener (under StocksCafe - Collab)

      Every quarter, I would post about REITs review upon their quarter results released. This should account for 80-90% of the qualitative analysis. If you would like the additional 10% - 20%, you could subscribe to my Patreon for more detailed on analysis/valuation.

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