REITs Are Not Forever Attractive
By (The) Boring Investor  •  September 1, 2013
REITs have been an attractive asset class since their introduction in Singapore in July 2002. They provide regular distributions with opportunities for capital gains. However, unlike shares, REITs are not exactly forever. The main reason is because the assets that REITs hold are mostly leasehold properties with expiry dates. When the leaseholds expire, they will lose the properties and will no longer be able to lease them out for rental income. Of course, REITs can always renew the leaseholds and/or buy new properties to rejuvenate their asset portfolios, but that will mean going back to the shareholders for money. Let us consider the case of a single-property REIT.

The assumptions adopted in this example are as follow:

Leasehold period 100 years
Purchase price  $100M
Equity  $50M
Debt  $50M
Rental yield 6.5%
Interest rate 3.0%
Discount rate 5.0%
Distribution rate 90.0%

Based on the ...
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By (The) Boring Investor
nvestor, Engineer, Photographer, Blogger, Friend and Son.
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