(h/tip Investment Moats, BT article here)

Teh Hooi Ling from the Business Times (BT) busts the Reit myth that Reits are stable, income-generating assets to hold thus making Reits the ideal investment vehicle of choice for folks looking for an asset-class that won’t be so volatile (actually they worry more about downside volatility. go ahead, ask anyone if they mind volatilty towards the upside).

Main reasons being that the way Reit managers are incentivised (as a function of NAV of the reit) and to manage the reit creates an inherent conflict of interest a.k.a a Principal-Agent problem plus the fact that most reits that have a sponsor that would of course want to offload the asset into the Reit at at the highest possible price.

Honestly, this isn’t a new thing and I’m surprised that the issue is only gaining attention because of the hoo-ha surrounding K-reit asia and their acquisition (from their sponsor) of Ocean Financial Centre.

Let me just say that not all reits are bad (obviously from a cursory look at the returns column) and when you buy the reit matters too. Signs of a shitty manager? Those that acquire assets from their sponsor when the property market is obviously high (if the property is acquired from an independent 3rd-party in an arms-length transaction when the market is high, you must question the manager’s intelligence or integrity) and make cash-calls when the economy/markets are in a doldrum.

The most useful part of the article- the damning table of shitty reit managers compiled by Ms/Mrs (?) Teh.:

The Damning Table

Disclosure: I am not a licensed financial advisor. I own units of First Reit.

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