Archives for category: reits

No, I’m not that gifted an investment writer to give you such a resource.

Instead, pop over to this gem by Investment Moats to learn more about Real Estate Investment Trusts (REITs).

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So last Friday, I was tasked by the Commander-in-Chief (C-I-C) of the Household to carry out a very important mission. My mission was to get my hands on a redeemable plush toy from a particular CapitaMall Trust-run mall.

First, some background. CapitaMall Trust has been running a promotion where shoppers can redeem a Disney Tsum Tsum plush toy. CapitaMall Trust being the smart buggers they are (disclaimer: I’m a grateful unitholder) decided to have different characters available at different malls so real die-hard fans would have to go spend at various malls in order to collect all six characters.

 

CapitaLand’s really making money out of these guys. Ok, they have to pay Disney licensing fees so I guess Disney’s the real winner here. Photo: Alvinology

 

So, my task was to spend enough to redeem an Eeyore Tsum Tsum plushie. I was given specific instructions to get it on Friday itself because that was the launch day and no chance must be taken that the target would be fully redeemed before I could get my hands on one.

Dutifully, I met the minimum required spending amount by 7:13 pm and took a queue number for my chance to get my hands on one of those adorable buggers. To my horror, because the mall has a system that allows you to key in your mobile number and the system will send you an SMS when your number is about to be called, I only realised at around 8 pm that there were some 200 people ahead of me in the queue. Even at 10-plus pm when the mall was about to close and the C-I-C arrived, my turn was nowhere in sight. Now, my palms were sweating. Worse still, the mall had stuck ‘fully redeemed’ stickers up on their wall adverts and it looked like there were only 50 more or so toys left to be redeemed.

 

Nearly thought we couldn’t get this fella.

 

The mall staff stayed back for a bit, trying to clear as much of the crowd as possible but it was only at 11 pm when the mall decided to throw in the towel and tell people to come back the following day. As soon as I heard that the mall’s system meant that we couldn’t retain our current queue numbers the following day, I realised that the turn of events meant that things were in our favour. Had the queue numbers remained, we would have some 150 or so people in front of us. If we stayed back to gripe about how the mall staff could have alerted us earlier, we would just be wasting time on the time we had already spent. In short, we would have fallen to the sunk-cost fallacy.

Also, the marginal cost of arguing with the staff was less than the marginal benefit from going home early to get as much sleep as possible so that we could hit the mall again the following morning.

Anyway, we went back early the next day, had a nice breakfast at Macdonald’s and were fourth in line an hour before the counter was due to officially open. The counter opened early and we got Eeyore within 15 minutes. Even better was the fact that we had so much time to kill before the next thing on our respective agendas for the day that we decided to catch “Beauty and the Beast” turning our morning into a proper morning date. It was one of the most fun things we’ve done in a while.

Despite my clickbait-ish title, I’m not saying economists have all the answers to help us deal with every situation in life. I’m saying that certain basic economic ways of thinking can help us make better decisions given the uncertainties of life. It’s inevitable that even if we make all the right decisions, the outcomes may not always be in our favour.

 

Kyith over at Investment Moats has a rebuttal to why REITs aren’t the main culprit of rental woes.

I completely agree with his main point but based on the public sources he’s implicitly referenced (here and here), I suspect that’s not the gist of what the sources are saying. Therefore, I suspect his post was made in reference due to private conversations he’s had with other people and given the news, I’m not surprised that there are some people who would blame the big, ugly machinations of a corporate entity like the various REITs for the woes of mom-and-pop tenants.

Nonetheless, he’s done a very good analysis of why REITs aren’t the culprit. Without taking you through his analysis, let’s do a little thinking of our own on why his analysis is spot-on. It’s all simple economics.

If REITs had that much power and really controlled much of the supply of retail space, then it would automatically mean that they have a monopoly and as a group, would be earning enormous profits for their shareholders. If that were so, investors would and should have also pushed the prices on such investments to a price where yields, relative to other investments are unnaturally low. Any market observer will tell you that this certainly isn’t the case.

Furthermore, if we think about how REITs could go about obtaining such a monopoly, then it would mean that other non-REITs would find hard to develop malls of their own due to difficulties obtaining land to build the project on etc. To this point, it certainly helps that REITs have sponsors who are typically large developers that provide a pipeline of malls that can be injected into the REIT at a later date but this hasn’t stopped non-REIT related developers from developing malls. The failed iluma and Jurong Point are examples of non-REIT related malls.

Also, the malls with lots of vacancies are evidently ones that have been doing badly for years- think Pacific Plaza or those that are badly in need of rejuvenation but find it difficult to do so because of the ownership structure – e.g. Far East Plaza.

Add to that the successful suburban malls that have popped up over the last few years- think jem, Westgate and Seletar mall for example and you have a complete story of why the bigger problem for the retail sector is one of oversupply for a lackluster demand (last I heard, the Singapore and world economy isn’t exactly peachy).

If REITs were the main contributory factor, instead of complaining, you should go out and exchange fistfuls of dollars for REIT units.