Get Rid of REITs

It is well known now that credit has been tighten. Property companies with high leverage are finding it hard to refinance, such as Centro Properties and Allco Reits. However, I was surprised to see some L&S still asking retailers to buy into Real Estate Investment Trusts (REITs).

MOST REITs are highly leverage on their balance sheet to generate "recurrent" income for the unit holders. Because they are so highly leverage, the change in financing costs will cut into their net profit margin significantly. Stock markets have correctly repriced REITs in recent months by slashing the share price. But, this doesn't mean that they won't keep falling. Stock markets may have priced in the interest expense part in chopping the net profit, but have they priced in the revenue part?

During recession times like the one in 1998 - 2000, Rental in most SICKapore properties FELL. YES! rental rate can fall when demand fell because of bankruptcy due to the recession. What makes u think that this won't happen again?

So, when would be a good time to accumulate REITs? I would feel more comfortable holding a BIG CAP REITs when it is trading way way below its NTA. Because this will give a good margin of safety. Looking through most of SICKapore listed REITs, I just can't find BIG capitalized REITs that are selling below NTA.

So, my conclusion is to stay away if u r not in. OR, sell off if you can afford to take the losses NOW!