Metrics to consider when investing in a REIT
General considerations when investing in the REIT, the investors should understand the characteristics of the REIT before making their decision on investment, should study the investment information and policies, details of real estate investment, risk of loans, and concerned risk factors in order to see clearly all necessities of the return on the REIT. Profit- sharing policies, fees and expenses should be considered, and finding all information from its representative should be required under these following the metrics for consideration before making a decision on investment;
Which is the tenure of real estate of the REIT? Freehold or Leasehold?
In case that the REIT invest in the freehold real estate, the value may be later increased when surrounding land is developed with higher inflation.
In case that the REIT invest in the leasehold real estate, the lease period will continuously be reduced by the time, and opportunity for obtaining the rental fees will also be lessened, so the value will be consequently decreased until the lease contract ended. This type of investment frequently brings about the high dividend yield.
Types of Real estate to be put in the REIT
Investors should consider carefully about the type of real estate that the REIT will should make an investment, such as retail, industrial real estate, office building, hospitality, and exhibition centers. Each type of real estate will generate different types of income, for instance; investing in industrial real estate or office building that will be managed according to the direct lease contract with its retail tenants, investing in the hospitality will be managed specially for the master lessee who will pay the fixed rent or the variable rent based on their variable income.
Location and Potential Profitability of the REIT
Location, quantity of competitors, oversupply situation, occupancy rate, tenant mix, type of varied real estate, and commercial status of the REIT must be considered before investing. Those factors will be indicators for investors to expect the potential profitability of the REIT.
REIT Manager and Trustee with great experience in the REIT management.
Relevant people in the REIT management must perform an important role to increase the future value and profit, so the REIT Manager has to be equipped with high skilled experience in the REIT management, and Trustee has to have great expertise and supervision in that REIT management.
Proportion of Unitholding for Any Person or Group of Persons
Some REIT sponsors after sold real estate to REIT will frequently return for holding the REIT units, and eventually take a part of the REIT management, so interested investors will be able to check whether that REIT has already been managed by the old owners and experts or not. That will bring about more confidence during the REIT's operation period. In case no the REIT sponsors return for holding the REIT units, there’re REIT Manager and Trustee with high experience and expertise in the REIT management, the proportion of unitholding for sponsors plays a smaller role.
Consideration of Historical Returns
Consideration of historical returns, expenses, revenues, rapid growth and profitability is required, in case the high profitability and growth are clearly seen, high dividend yield can be also anticipated. According to profit- sharing regulations, paying 90% of net profit would be expected.
Dividend Yield (Yield %)
The dividend yield per year is shown as a percentage (%). Dividend yield equals the annual dividend per the REIT unit divided by the unit price, yields for a current year can be estimated using the previous year’s yield or by expected yield (IPO REIT), investors will have to consider carefully the expected return on that investment.
Net Asset Value: NAV
Net Asset Value (NAV) is associated with the value of its underlying real estate assets, minus by the value of its liabilities. It is frequently calculated and compared to Mark to Market, this ratio gives an indication of whether the REIT is currently overvalued or undervalued with respect to its intrinsic value.
