When growth investing backs in favor, dividend investing included REIT investing subsides. However, besides of market sentiment changed, domestic REIT stock is facing two headwinds; 1) increased financial cost, 2) increased utilities cost.

Although the increased financial cost is depend on its capital structure on both composition of fixed and floating interest loans, the utilities cost such as electricity bills is depend on the lease contracts, either owner or tenant bears the utilities cost.

Anyway, no good news for domestic REIT stock, the net profits and distribution are negatively impacted by higher financial costs and utilities costs according to the latest quarterly financial reports from certain REIT stock. As such, REIT investors received less income, and I guess this situation will be continue for next several quarters, until the costs successfully passthrough to the tenants but I believe not all the REIT has this bargaining power.

Office REIT still facing the oversupply market condition. Regardless people back into normal daily life after the covid pandemic, work from home is here to stay. Due to the oversupply condition and market negative view on future prospect of office building, office REIT is trading below its net assets value. This situation is not only happened in domestic REIT but also same in the overseas market.

In order for office REIT to gain back market confidence, in the overseas market, some office REIT merged with others to becomes a diversified REIT. However, domestic REIT seems focus on its own strength, such as recently SENTRAL REIT proposed to acquire Menara CelcomDigi. In my opinion, in current market situation, higher required rate of return for fundraising maybe required by the investors.

To conclude this post, I captured a chart to compare KL REIT and Tokyo REIT performance in below. For 1-year return ended as Jun 2023, the KL REIT has a -3.0% return compared to Tokyo REIT -5.3% return.

https://streetanalystblog.wordpress.com/2023/07/30/a-brief-note-on-reit-investing/