Key takeaways

  • Private Real Estate Investment Trusts (REITs) are real estate funds or companies that are not listed or traded on traditional stock exchanges.
  • They could offer better dividends than publicly listed stocks and public REITs
  • They tend to be less volatile than public investments and can be a great option for portfolio diversification
  • Traditionally, the asset class is less liquid than public REITs
  • In the past, high entry requirements have meant only institutional and ultra-wealthy investors have been able to access this asset class.

What is private REIT?

Private Real Estate Investment Trusts (REITs) allow investors to invest in a portfolio of income-producing real estate properties. Unlike publicly-listed REITs, they are not available on any public stock exchange such as the SGX or the NYSE.

Private REITs can offer higher dividend income compared to publicly listed REITs. According to National Retail Investor, private REIT dividend yields have historically been as high as 7% to 8% versus the dividend pay outs from public REITs, which have been between 5% and 6%. In addition, private REITs can offer lower volatility than publicly listed stocks and can be a great option for portfolio diversification.

There are many kinds of private REITs. Some specialise in specific kinds of industrial, commercial or retail properties and others invest in a combination of all three.

Private REITs offer investors two sources of returns: income via dividends and returns in the form of the portfolio of properties’ overall rise in value over time.

The management company of a REIT rents out the properties in their portfolio to tenants and dividends are determined through the rental revenues earned. The specific size of a dividend that an investor receives depends both on the amount raised and the number of shares they own.

By investing in funds that have exposure to the right properties that are well managed, the overall value of the portfolio can rise over time. The opposite is also true too; REITs that are not well-managed, and/or which don’t invest in the right properties can fall in value.

Who can invest in private REIT investments?

In Singapore, private REITs have traditionally been available to institutional investors and ultra high net worth individuals at an investment size of S$250,000 and above. However ADDX is democratising private REIT investing by making them available to investors for as little as S$10,000 (for primary offerings) or S$100 (to trade on our secondary market).

To qualify as an ADDX investor, investors need to meet one or more of the following conditions:

•Yearly income of at least S$300,000, or

•Net financial assets of at least S$1,000,000, or

•Net total assets of at least S$2,000,000

What are the advantages of investing in private REITs?

Superior income

As noted earlier, Private REITs often pay superior dividend income compared to publicly listed REITs. Moreover, private REITs pay higher dividends than many other dividend-paying investments because they pay out 90% of the income they earn.

Diversification and risk reduction

They offer exposure to a diversified portfolio of real estate properties that is less risky than investing in one property directly. Also, private REITs are considered uncorrelated – meaning their performance is not directly linked – to public securities markets. This gives them real advantages when it comes to reducing investment risk.

Lower volatility

The value of private REITs are often subject to lower volatility than if you invested in any listed asset, which are tradable by the general investing public. The prices of listed assets vary on an intraday basis based on investor sentiment.

Lower compliance costs

Private REIT are subject to lighter regulation than public REITs in Singapore and thus have lower compliance costs, which would otherwise dilute revenues. As a result, dividends can be several percentage points higher than the dividends per share of public REITs.

Consistent, inflation-beating cash flows

Rentals generally keep pace with inflation and thus the income stream continues growing ahead of general price increases in the economy. That means your income is not eroded by inflation over time.

Capital appreciation potential

Depending on the quality of the underlying property assets and how well the properties are managed, investors stand to gain from growth in their values.

What are the downsides to investing in private REITs?

Less Regulated

Private REITs are not as comprehensively regulated as publicly listed assets. So you need to do your homework before investing.

Difficult to access

Private REITs have high entry costs and are thus difficult for most investors to access. However, ADDX has made access to private REITs far easier, and investors may buy in for a fraction of the normal price.

Costs can mount up

Most investors have to go through a broker to invest in a private REIT, who charges a brokerage fee. Management and transaction costs are also applicable and can include promoted interest or a percentage of profits, annual management fees and formation fees.

ADDX is your entry to private market investing. It is a proprietary platform that lets you invest from USD 10,000 in unicorns, pre-IPO companies, hedge funds, and other opportunities that traditionally require millions or more to enter. ADDX is regulated by the Monetary Authority of Singapore (MAS) and is open to all non-US accredited and institutional investors.