Of the 11 industrial Reits they cover, DBS has a “buy” call for 10 of them and a “hold” call for Sabana. I hold four of the “buy” recommendations. I’ve been holding two of them (non TLCs) for years, collecting the payouts and smiling. Likewise the one TLC I own. I bot the 4th (non TLC and really cowboy) in March 2020. It’s been a wild ride especially since I opted for scrip not cash. Now marginally underwater, Lower US interest rate increases should help Reits in general.
Further to The kind of FT turned citizen that S’pore needs, I tot I’ll share this so that someone overseas can KPKB about our banks very, very large exposure to the local property sector.
DBS estimates that approximately 44%-50% of Singapore banks’ loan books are exposed to Singapore properties via residential mortgages and via lending to REITs or other private vehicles may be captured under “financial institutions, investment and holding companies”
https://www.theedgesingapore.com/capital/brokers-calls/dbs-explains-what-higher-interest-rates-spell-banks-and-developers-cdl-uol
As the PM’s Mrs made me $ (Tempting fate but thanks again Ho Ching), and I’m not one of those PAP running dogs from our constructive, nation-building media who turn on the PAP like hyenas and jackals once they no longer get paid (Another running dog turned self-appointed tribune of the HDB plebs ), I’ll just keep quiet and look at my bank statement.
I also got exposure to UOB and UOL (via Haw Par: Haw Par: Rediscovered yet again) and Reits.
I’ve never voted for the PAP. But to quote the FT minister, “I’m invested in S’pore”and that is the way I show my appreciation of what the PAP does to keep me in prosperity.
In future, 85% of employees would prefer to work remotely at least two to three days a week, according to a survey by CBRE a commercial real estate services company.
And there’s this:
If a white collar job here can be done from home, it can be offshored somewhere cheaper. Could someone else do it more cheaply from KL, JB, Bangkok, Mumbai or Manila?
Another big problem looming for S’pore
Further to Can local bank stocks fall by 37%? And other investment tales, here’s another good reason to think that bank stocks can really tank.
In the UK, where banks are usually generous dividend payers, after the authorities told banks to stop paying dividends until next yr, the banks decided to compete on seeing who could %wise have the largest loan loss provisions. HSBC (where I’ve owned shares since the early 1980s) won this show of macho, increasing provisions by a third more than expected. Shares fell by another 4% on Monday and 3% yesterday. The share price is near its 1996 lows and have already fallen below the late noughties low.
What I’m predicting is that our banks will be increasing their loan provisions beyond analysts’ expectations. They will be reporting their latest results soon.
So it’s possible that our banks’ share prices can fall by 37%.
Last chance to sell as shares recovered their Monday losses yesterday.
Good luck, yield chasers who tot banks were safe. Why not try industrial reits? They’ve held up pretty well. Buy the second liners (not the GLCs) so that I can smile when I look at their prices.
IRAS, MAS and MOF jointly issued a press release on 16 Apr highlighting new measures to support S-Reitss following the market collapse caused by the Covid-19 pandemic.
One initiative comes in the form of an extension in timeline from three months to 12 months for S-Reits to distribute at least 90% of their FY20 taxable income to unitholders to qualify for tax transparency.
(Btw,I had advised those who asked my views on S-Reits that I tot this 90% payout rule would be scrapped for this year.)
The second measure is the increase in leverage limit from 45% to 50% with immediate effect to allow more flexibility in the management of capital structures. About time too: our Reits I’ve been KPKBed were too conservative (as per the regulations) in their leverage. Should be 55% to 60%. But seeing the carnage, I’m glad that the regulatory ratio was only 40%.
There’s more: the implementation of a new minimum interest coverage ratio requirement would be deferred to 1 Jan 2022.
In general, brokers are recommending government-linked REITs with strong sponsors
Example OCBC:
Ascendas REIT (AREIT SP) [BUY; FV: S$3.59], Mapletree Industrial Trust (MINT SP) [BUY; FV: S$2.87] and Mapletree Commercial Trust (MCT SP) [BUY; FV: S$1.96]. We also like NetLink NBN Trust (NETLINK SP) [BUY; FV: S$1.10] for its resilient business model.
Research Team
In summary, the models expect recovering GDP growth, extremely low inflation, exceptionally low bond returns, and low but positive equity returns in 2020-22.
Gavyn Davies* talking about the global macro scene for 2020
I tot I would be selling out of my S-Reits in 1Q 2020. Guess I’ll hang around for a bit longer.
*He’s an FT columnist
Gavyn Davies is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He was the head of the global economics department at Goldman Sachs from 1987-2001, and was chairman of the BBC from 2001-2004. He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics.
FT
Sir James Dyson (Ang moh who bot S$73.8m flat) will purchase his second luxury property according to a report in ST
It says that the S$45m (US$33m) has an infinity pool and indoor waterfall.
The purchase comes after his company moved its HQ from the UK to S’pore: Ang moh manufacturer employs more people here than in China and planning to employ a lot more is to build the first of its electric cars in Singapore, choosing the country over the UK and China..
Earlier this month he bought what is S’pore’s biggest and most expensive penthouse. BT reported that he paid S$73.8m (US$54m) for the “super penthouse”, which has views of Marina Bay Sands and the financial district.
Wonder what TRE’s Oxygen thinks about these purchases. He’s been saying property here is a “sell” ever since he started posting in TRE (at least 8 yrs ago). And he also says the end of PAP rule is nigh.
Meanwhile, I look at my bank statement, see the income from reits and smile.
Supermarket chain Sheng Siong, ground-services provider SATS, ComfortDelgro, SIA Engineering and ST Engineering say DBS. Can’t argue with these at this time, especially the TLCs and the GLC.
With a host of risk factors, including fresh trade-related jitters, threatening to cause more pain for local equities, analysts say it’s time for investors to seek shelter in defensive plays.
“We advocate investors to reposition into defensive stocks, using the rebound in July to pare exposure to cyclical names,” said DBS Group Research analysts Yeo Kee Yan and Janice Chua.
These will be stocks that are not closely linked to the economic cycle, while having a healthy level of cash, decent growth of about 5 per cent ahead and a consistent and satisfactory level ofdividend payouts.
But buying Reits? Taz another analyst suggesting.
Now I’m still up to my eyeballs in Reits. But even I consider them higher risk stuff because they pay out most of their income. Btw, I’ve never been into retail Reits.
for me.
After all UBS tells its private banking clients “[Reit] yield spreads to government bonds in Singapore (450 basis points) and Hong Kong (400bp) compare favourably with the global average of 306bp . . . And we expect the continued demand for yield to drive this spread lower, supporting Reit prices.”
But then didn’t DBS tell its private banking clients to buy Swiber bonds?
But then UBS is no DBS.
I was keen to learn more about the Reit ETF that is being promoted.
Until I learnt that a large percentage of the SGX REIT ETF is in Australian REITs: 60% to be precise. Now other than exposure to the A$, the commodity currency, the problem isAustralia has a withholding tax, currently at 15%.
It is also important to note that that the distributions paid by the pool of listed REITs are also subjected to Singapore corporate income tax rate which is currently at 17%. This tax is applicable at the fund level but not at the individual level.
All these taxes, and mgt charges (it’s not a cheap ETF) makes lousy yield of only around 4.5% net.
Writer goes into great detail about his three points especially on how to judge The Competency and Integrity of the Managers of the REIT
1. The Competency and Integrity of the Managers of the REIT
2. Jobs, Business and the Economy
3. Valuation of the REIT
“Real estate is TIPS (Treasury Inflation Protected Securities) on steroids,” adds Mr Steers. “Reits are not bonds. The most certain thing is that if rates are rising and you are in fixed income you will lose money.” FT
Mr Steers is from real estate investment firm Cohen & Steers in New York and he’s bullish on US real estate.
Meanwhile in S’pore, CNA reported on 18 November
‘GOOD DEMAND’ FOR SINGAPORE-LISTED REITS
“With the lower leverage threshold, there might be more Singapore REITs who will look to tap this source of funding, given it is still treated as equity instead of debt,” said Mr Tim Gibson, co-head of global property equities at Henderson Global Investors in Singapore. His firm manages about US$123 billion (S$175 billion) worldwide. “Investors continue to seek yield in this environment,” he added.
Mr Neel Gopalakrishnan, an emerging-markets fixed income analyst at Credit Suisse’s private banking and wealth management unit in Singapore, said: “Most Singapore-listed REITs have good credit quality. Hence, there is likely to be good demand (for their perpetuals*).”
Singapore’s listed REITs had an average debt-to-asset ratio of 34.6 per cent at the end of September, versus 32.8 per cent from a year earlier, according to data compiled by Bloomberg.
The new cap on borrowings takes effect from Jan 1 and the REITs could issue as much as S$12.5 billion of traditional debt without breaching the new threshold, said Mr Hasira De Silva, a Singapore-based analyst at Fitch Ratings.
That leeway narrows to S$7.5 billion if their S$110 billion of assets suffer a 10 per cent depreciation, he said.
CNA also reports:
Falling values, rents and occupancies for debt-backed properties could tip Singapore’s economy into further trouble amid the slowest growth in three years.
Office rents may fall as much as 7 per cent this year and another 8 per cent next year as demand slows, according to property consultancy DTZ, while home prices keep declining as a result of cooling measures and loan curbs.
On Oct 26, office landlord Keppel REIT sold S$150 million of perpetual debt without a so-called step-up coupon, a gradually rising interest rate that is usually a feature of such bonds. It sold the notes at 4.98 per cent, 183 basis points more than seven-year debt it sold in February.
In the same month, business park owner Ascendas REIT raised S$300 million issuing similar notes, while serviced apartments specialist Ascott Residence Trust issued S$250 million of them in June.
The value of Singapore’s office buildings fell 0.1 per cent in the quarter ending Sept 30 from the previous three months, while shop prices declined 0.3 per cent, according to data from the Urban Redevelopment Authority.
Home prices dropped 1.3 per cent, the most since the second quarter of 2009, according to data compiled by Bloomberg.
The FTSE Straits Times Real Estate Investment Trust Index has dropped 11.4 per cent this year, on course for its worst annual performance since 2011.
Meanwhile risks for Reits here will increase in 2016 because weak economic fundamentals will weigh on demand while new supply is added into most sectors, Fitch Ratings said in a report released on 23 Nov.
Fitch expects S-Reits with stronger balance sheets to become more acquisitive in 2016 as they try to boost earnings growth by capitalising on lower asset valuations. Sector leverage – as measured by debt to total assets – is likely to increase in 2016.
On hotel ones, earnings will likely continue declining next year, but at a slower pace, as visitor arrivals into Singapore is expected to recover. Nevertheless growth in hotel room supply in Singapore will continue to outpace demand, leaving operating conditions challenging for the sector.
“We expect ratings of CDL Hospitality Trust (BBB-) and Far East Hospitality Trust (FEHT, BBB-) to remain stable, supported by strong balance sheets, and around 40-50 per cent of income stemming from fixed rent.”
Other hospitality Reits considered in the report include Ascendas Hospitality Trust and OUE Hospitality Trust.
On industrial Reits, pressure on earnings will increase in 2016: the world economy is weak”We expect lower-specification industrial assets, such as warehouses and multi-user factories, to see weaker rental reversions than for higher-specification assets, such as business parks. The demand for business parks is stronger, and a significant part of the new supply is pre-leased,” it said. Ascendas REIT, Mapletree Industrial Trust and VIVA Industrial Trust are among the industrial REITs covered
The strong performance of healthcare Reits is likely to continue in 2016, supported by robust demand for medical services and an ageing population in Asia. Healthcare SREITs’ long-term lease structures with a high degree of rental protection and their high proportion of fixed-rate debt will also support earnings growth.
—–
*Landlords in Singapore are planning to issue perprtual bonds which are treated as equity to get around new rules curbing their debt amid a property slump. Data from Fitch Ratings showing Reits having issued a record S$700 million of perpetual notes with no set maturity date thus far this year.
The Monetary Authority of Singapore is capping borrowings of Reits at 45% of assets from next year, and debt that can be considered equity (Perpetuals) offers landlords a way out.
Under global accounting rules, bonds with no fixed maturity that allow the deferral of coupon payments can be treated as equity.
Those buying bonds, growth and quality stocks and the US dollar will be exposed if the world economy starts going well, for a change.
The thesis secular stagnation has been good for “conservative” investors like me.
But
| “The old order changeth, yielding place to new, | |
| And God fulfils himself in many ways, | |
| Lest one good custom should corrupt the world. |
“In 2013 we decided to go for Reits as a long-term hedge for inflation,” Heman Womg, executive director of the HK Hospital Authority Provident Fund Scheme (HK$57.9bn /US$7.5bn).
Source: Today’s FT
Manulife Financial Corp., Canada’s largest life insurer, has delayed plans for an initial public offering of its U.S. office assets in Singapore because of increased stock-market volatility.
Even my dogs know that when interest rates rise, the yields from Reits should fall, and so will the unit prices.
Here’s shumething from FT that I didn’t think about
but for those investing primarily for income, the yield you obtain at the beginning when you buy your investment is a big protection. If you are happy to keep receiving your income, there is no need to sell the Reit for a loss as interest rates move up.
Of course you will be aware that rising interest rates could lead to problems for Reits’ biz model. But taz another issue.
And I suspect that soon Reits, Biz trusts (or in the US master limited partnerships, MLPs)will be an alternative asset class to those who at present invest in junk bonds for their yield.
Likewise stocks with sustainable, decent dividend yields like Temasek’s Fab 5
“The Fed rate projections have been significantly lowered over a three-year horizon. This points to a later lift-off,” FT quotes a BNP Paribas economist.
In simpler English:
“The Fed is in no rush,” said Ward McCarthy, chief US economist at Jefferies.
“At the current juncture, the timing of the liftoff is still indeterminate and will depend upon the inflation data. The policy statement eliminated the use of ‘patient’ in forward guidance, but the FOMC also described the new forward guidance as being “consistent” with the prior forward guidance.”
He added: “The word ‘patient’ was removed, but the meaning of patient remained.” (BBC)
Or as Reuters puts it: The Federal Reserve on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signaling it is in no rush to push borrowing costs to more normal levels.
http://www.reuters.com/article/2015/03/18/us-usa-fed-idUSKBN0ME0D520150318
If you believe stock brokers:
Industrial
High supply and limited demand are key risks.
The good times may finally be drawing to a close for industrial REITs, after enjoying three consecutive years of double-digit revenue growth.
A report by CIMB stated that industrial REITs have limited room for further positive rental reversions. In the past three years, rental indices for the different types of industrial properties have rebounded to pre-GFC levels on the back of a lack of supply, and strength of the manufacturing production index (MPI) gaining strength.
These two factors will be absent this year, what with the MPI forecasted to only grow from around 1-2% while supply will be high, averaging 7.1m sq ft p.a. for single-user factory space, 5.7m sq ft for multi-user factory space, 5.7m sq ft for warehouses, and 1.7m sq ft for business park space in 2015-2016.
“As such, we believe the room for further positive rental growth could be suppressed. In addition, with passing rents for industrial REITs’ properties mostly marked to market, the lack of decent growth in the headline rents in this sector could limit the room for higher rental rates when leases are due for renewal in the coming quarters,” stated CIMB.
– See more at: http://sbr.com.sg/commercial-property/in-focus/good-times-are-over-industrial-reits#sthash.aCLjlS5M.dpuf
Office
According to BNP Paribas, it may be time to take profit on office REITs as positives have been priced in by the market and new CBD offices are on their way in 2016.
“Office rents should continue to rise in 2015, with an increase of 10% y-y in 2015. That said, we believe this has been largely priced in by the market, as reflected in the share-price outperformance of office REITs in 2014. Looking ahead, new CBD offices that are due to come on the market in 2016 could lead to a flurry of leasing activity, starting as early as 2H15. This should cap rental growth in 2016,” stated BNP Paribas.
– See more at: http://sbr.com.sg/commercial-property/news/it-time-take-profit-outperforming-office-reits#sthash.nvdScjBc.dpuf
Retail
According to CIMB, the worst is finally over for these retail REITs. For one, space supply is expected to moderate this year peaking in 2014. Around 2.6m square feet of space flooded the market last year, more than twice the 3 -year historical average net take-up of 1.1m sq ft.
“We expect supply to moderate, averaging about 700k sq ft annually in 2015-2018. Additionally, we believe Singapore is not “over-malled” vs. other Asian cities and historically,” stated CIMB.
– See more at: http://sbr.com.sg/commercial-property/news/retail-reits-in-rebound-after-extremely-bleak-2014#sthash.8BhDMwSt.dpuf
Since the start of last year emerging-market stocks have trailed their rich-world peers. Currencies are falling. Worst-hit is the Russian rouble, which has fallen by 30% against the dollar this year. The currencies of other biggish emerging markets, such as Brazil, Turkey and South Africa, have also weakened. For such economies growth is harder to come by. The IMF recently cut its forecasts for emerging markets by more than for rich countries. But India is a notable exception to the general pessimism. Its stockmarket has touched new highs. The rupee is stable. And the IMF nudged up its 2014 growth forecast for India to 5.8%. That figure is still quite low: growth rates of 8-9% have been more typical. But in comparison with others it is almost a boom. Why is India doing better than most emerging markets?
In part optimism about India owes to its newish government.
The other reason is that The currents that sway the global economy presently—the dollar’s strength; slowdown in China; aggressive money-printing in Japan; stagnation in the euro zone and falling oil prices—are less harmful to India than to most emerging markets.
http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-11
I’ve had exposure to India via the Ascendas India biz trust since 2008. It’s been a ride but the payouts are very decent. Chk it out as you too may like it. http://aitrust.listedcompany.com/newsroom/20140710_170824_CY6U_ANGLIE824Z3T5WVH.1.pdf
Note that some results have been annced since the above presentation.
BOND KING’S MANTRA LIVES ON William H. Gross may have departed Pimco, but executives at the bond giant have embraced his view that a stagnating global economy will force central banks to keep interest rates low, Landon Thomas Jr. writes in DealBook. …
Before he left the firm, Mr. Gross called his insight the “new neutral,” and Pimco is showing no signs of abandoning its departed leader’s mantra. In so doing, the firm’s executives are making the case that the Pimco bond funds that have made investments based on this economic approach will not soon change their strategy. Daniel Ivascyn, who was appointed to succeed Mr. Gross as group chief investment officer, took pains to point out that this new investment tack had many fathers, and emerged from a Pimco-wide brainstorming session this spring. But it is also true that the notion never really took off until Mr. Gross pitched it at an investor conference while wearing sunglasses, Mr. Thomas writes.
Mr. Gross’s economic predictions have failed in the past, but Pimco looks to be on firmer ground this time around. Like Mr. Gross, a number of economists believe that a mix of high debt, low growth and disinflation will force central banks around the world to keep rates from rising. Before he left Pimco, Mr. Gross had begun to invest in riskier, higher-yielding securities like government bonds in Italy and Spain and corporate bonds in Brazil, a strategy that the firm is still following. …
NYT’s Dealbook
Well the equivalent of these in equities would be Reits and other high yielders. Interestingly, FT reports that the fund mgr of Schroders flagship UK fund thinks there is value in income producing equities.
And an alternative view: We are doomed, doomed. Central banks cannot prevent deflation of everything including assets.
… listed developers and real-estate investment trusts (REITs) face their heaviest burden of near-term maturities on record just as home prices drop.
The 80 property companies on Singapore’s stock exchange reported a combined S$23.5 billion of borrowings that have to be repaid within a year in their latest filings, Bloomberg-compiled data show. The looming debt wall comes as the vacancy rate for condominiums soared to the highest since 2006, pushing prices to the lowest in almost two years, data from the Urban Redevelopment Authority (URA) showed.
“We’re at that point in the cycle when every quarter you’re seeing selling prices come down a little bit and secondary market transactions aren’t very active,” said Ms Kah Ling Chan, a property analyst at S&P in Singapore. “I suspect we haven’t seen the bottom yet.” Bloomberg
But Frasers Commercial Trust (FCOT) has obtained enough loan facilities to refinance all of its outstanding borrowings, most of which would have been due in the next financial year.
The commercial real estate investment trust (Reit) announced on Monday that it had obtained a S$365 million five-year syndicated term loan facility and a S$180 million three-year syndicated term loan facility.
It had also taken an A$135 million (S$154 million) four-year syndicated term loan facility.
The new facilities are unsecured and are expected to be used by end-September to refinance all of the trust’s outstanding loan facilities. (BT 16 September).
I had been thinking of selling FCOT because its tai kor (Thai tycoon that controls F&N is up to his eyeballs in debt) and because of the debts coming due at FCOT. I’ll hang on a bit more as mgt is innovative as this 2012 deal shows..
But in general,
REITs are in better shape than listed developers because they started refinancing with longer tenor debt ahead of rising interest rates, said S&P.
“For the REITs, I don’t see a major problem yet,” Ms Chan said. “The bigger players are still getting good rates and valuations haven’t fallen dramatically,” she said.
Other bits of Bloomberg’s report.
Developers
Developers of residential homes are suffering not so much from lower selling prices than “collapsed” sales volumes, said Mr Alan Cheong, a senior director of real-estate research at Savills in Singapore.
Secondary home sales plunged to the lowest since 2003 in the first quarter, URA data showed, and as business slows, builders with less pre-sales money to finish projects have to rely on loans, boosting short-term borrowings, he said by phone on Oct 2.
Despite the weaker demand, the number of new residential dwellings being built remains high. Units under construction reached a record in the second quarter of last year and about 65,270 apartments were in the pipeline as of June 30, URA data show.
Regulatory measures have been introduced to damp the market. Between 2009 and mid-2013, the Monetary Authority of Singapore implemented eight rounds of property cooling measures to address concerns the low interest rate environment would lead to a property price bubble, Moody’s Investors Service said in an Oct 6 report.
Appetite to buy is already curbed and rents could fall further, said S&P’s Ms Chan. “We haven’t seen the full impact yet.”
The 42 listed developers on Singapore’s exchange reported S$13.4 billion of short-term borrowings in their latest filings, 42.5 per cent more than a year earlier, data compiled by Bloomberg showed.
City Developments posted debt of S$1.66 billion in the second quarter, 48.6 per cent more than at the end of 2013. Second-quarter net income fell 33 per cent, it said in August, and the company is looking to expand overseas to offset declining demand in Singapore. A spokeswoman for City Developments said the company has a strong financial position, noting its cash of S$3.4 billion and 33 per cent net gearing ratio.
The three-month swap offer rate, a measure of borrowing costs in Singapore, touched 0.2561 per cent on Sept 16, the highest since June last year.
…
Hiap Hoe, which recently started selling apartments in its prestigious Skyline 360 building, reported short-term borrowings of S$287.6 million for the quarter to June 30, 94 per cent more than the S$147.9 million for the three months to December. A spokesman for Hiap Hoe declined to comment.
Developers on the island are changing their business models and reducing exposure to the local market, said Singapore-based Mr Tim Gibson, who helps run Henderson Global Investors’ global property equities fund.
“By buying Singapore developers now you’re really buying exposure outside of Singapore and into markets like China,” he said in an interview on Oct 8. It “doesn’t give you a huge amount of confidence that a turnaround in the residential market is coming any time soon”, he added.
Starhill Reit/ Retail Reits
Starhill Global REIT, which has S$124 million of notes that mature in July, reported S$129.1 million of short-term borrowings as of June 30, more than double the amount it had in December last year.
Retail occupancy rates at the trust’s flagship Wisma Atria mall along Singapore’s Orchard Road slipped to 98.5 per cent in June from 99.5 per cent at the end of 2012, company data showed. Office occupancy rates are 100 per cent.
Mr Jonathan Kuah, a Singapore-based spokesman for Starhill, said the company has already refinanced its debt due within the coming 12 months. “The leverage situation hasn’t worsened,” he said by email on Oct 7.
Retail sales, which affect revenue at some REITs, decreased for four of the past five months, the worst performance in two years, data from Singapore’s Department of Statistics showed. Excluding motor vehicles, sales dropped 0.4 per cent in July versus the previous corresponding period.
“Singaporeans don’t shop here any more,” Savills’ Mr Cheong said. “Travelling has become so cheap and they buy more stuff on the Internet. The Chinese have also been avoiding Singapore, Malaysia and Thailand since the MH370 tragedy,” he added, referring to the Malaysia Airlines flight missing since March.
Arrivals of tourists from North Asia, which typically comprise more than a quarter of visitors, slumped almost 13 per cent the first seven months of 2014 from a year earlier, Singapore Tourism Board data showed.
“In 2008, when the refinancing situation was quite bad, the REITs still managed to pull through,” said Mr Danny Tan, a Singapore-based fund manager at Eastspring Investments, which managed US$115 billion (S$146 billion) of assets as of June 30. “There’s a high probability these REITs will be able to refinance especially because the loan market is also open to them.”
Further reading
(7 Oct 2014) Falling property prices in Singapore – one the world’s most expensive housing markets – have provided some much needed relief for the nation’s banking sector, analysts told CNBC.
“The gradual decline in property prices is credit positive for Singapore banks because it relieves pressure on bank asset quality,” Moody’s analysts said in a note published Monday.
“Further price increases would have increased the risk of a real estate price bubble bursting,” they added.
LMIR Trust to acquire Jakarta mall for 3.6 trillion rupiah
Lippo Malls Indonesia Retail Trust (LMIR Trust) plans to bulk up its portfolio by acquiring a five-storey shopping centre in southern Jakarta, Indonesia, for 3.6 trillion rupiah (S$385.7 million) which it plans to pay with cash and new units.
The acquisition of Lippo Mall Kemang (LMK) from PT Almaron Perkasa – a company incorporated in Indonesia which is 92 per cent indirectly owned by the trust’s sponsor PT Lippo Karawaci – could potentially raise the trust’s portfolio by 27 per cent from S$1.42 billion as at end-June to S$1.8 billion.
LMIR Trust’s manager, LMIRT Management, has proposed to issue up to 301.37 million new units to PT Almaron Perkasa, which under the conditional sale and purchase agreement signed on Sept 14 will receive 3.18 trillion rupiah in cash and 420 billion rupiah in units for LMK.
The firm deemed the deal to buy LMK, which enjoyed a high occupancy rate of 93 per cent as at June this year, a “strategic acquisition of a prominent retail mall” located close to residential apartments, a hotel, a wedding chapel, a school and a country club. LMK also serves as the podium of the proposed JW Marriott Hotel, Pelita Harapan school campus, a planned hospital and three condominium towers. (BT this week)
And
From now till end-March 2017, acquisition strategies will be executed in full swing by Accordia Golf Trust (AGT).
The first Singapore-listed business trust with golf course assets in Japan, and also Asia’s first golf trust, AGT currently manages 89 golf courses in Japan, with a combined value of about 160 billion yen (S$1.89 billion).
Together with its sponsor company, Tokyo-listed Accordia Golf, they own 133 golf courses in Japan, and they are the largest golf operator in Japan, with a 5.5 per cent share of the market.
In a media briefing on Monday, chief executive officer Yoshihiko Machida said the trust is now poised to acquire an additional 50 billion yen worth of golf assets, with a preference for 19 golf courses currently owned by Accordia Golf, of which AGT has the first call options right to purchase. (BT this week)
I own a bit of the former and and still thinking of the latter. The issue with these is the strong S$. (Yen was at an all time low against S$ this week).
Charoen’s empire (Remember he is bidding to buy OCBC group’s shares in UE).
Those who own Frasers’ reits have to take account of the increased risk profile of the reits. There is no longer cash rich, conservative F&N as the fall back, indulgent parent (it rescued FCT by injecting a valuable asset in the 2007/ 2008crisis). There is a Thai billionaire who it seems is geared to his eye-balls and more. In the 1997/ 1998 crisis, he nearly went bust.
When it comes to Reits, I’m almost like Pussy Lim saying the PAP is doomed (since 1990s), though she recently nuanced her remarks and Roy on the govt “stealing” (my take on what he is claiming, not his word) CPF. Same old messages.
Here’s a variation on my Reits tale. I’m looking at a Reits’ strategy to guard against the effects of likely interest rate rises*. I’m looking at a“core plus” or “value add” strategy: Reits that buy underperforming assets, for example a building with empty space, and focuses on improving returns, for instance by increasing occupancy.
Or Reits outside traditional core commercial real estate include student housing, medical offices, storage and even social housing. I’ll be looking at the Jap Golf Reit.
If I find Reits that are executing this “core plus” or “value add” strategy competently, I’ll switch to them even if their yields are lower. Let you know my conclusions after I do the switches.
BTW, Bank of S’pore, OCBC’s private bank, is recommending Reits and other income plays.
Sounds like what I’ve been doing, suggesting the last few yrs. Maybe I can be Bank of Singapore’s strategist?
Singapore equities will remain range-bound for the short term, but dividend plays will continue to attract interest, said BoS’s CIO on July 3.
“… certain interesting themes in the Singapore market, and one of which … there are many opportunities in the dividend yielding sector, ‘REITs’, some of those Temasek-linked companies** do give you a very nice yield in the context of a very low yielding environment in the world,” said Chief Investment Officer Hou Wey Fook.
BOS says the impact of a slowing Chinese economy on Singapore’s growth will likely be offset by the pick-up in the developed economies. This combined with the steady performance of emerging economies will deliver the best global economic outlook in 2014, since three years ago. (BT report)
BoS, like me, says it prefers equities to fixed income due to falling bond yields and soaring stock market indices. It also expects the improving growth momentum to spur companies into increasing their capital expenditure and M&A activities.
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*Keep an eie on the junk bond market. It’s going through a serious correction that could turn into a collapse given that many say the junk bond is a bubble.
**https://atans1.wordpress.com/2013/10/03/temaseks-fab-5-spore-blue-chips/
Yes but saying I’m still invested in reits and dividend paying stocks, I know I’m sounding like Msian Cina New Citizen Pussy Lim playing her broken record or CD of “The PAP are doomed” (first version 199o something) and repeated at regular intervals. BTW she’s the best ad for the Malay ultras and their slogan “Apa lagi Cina mahu?”. The PAP govt gave her citizenship and a cushy job teaching teachers (She bitched or catted at fellow lecturers: once asked students if fellow lecturer, a scholar, was gay. This was in the 80s and could have ruined his career: it didn’t as students reported her actions, and she was warned to stop) and she see how she repaid the PAP: sliming PAP.
Sorry, back to reits and dividend paying shares.
Defensive leh. No-one knows why things are the way they are
The world of finance is ensnared in a triple mystery: falling bond yields, falling inflation and rising debt. The ignorance is dangerous.
(The first two implies deflation, the last implies inflation as defaltion increases the debt durden: ask the Japs)
Investors and lenders are equally at a loss. They might want to prepare for deflation. But it is always possible that they should be preparing for a new mystery: the long-delayed return of inflation.
http://blogs.reuters.com/breakingviews/2014/06/17/triple-financial-mystery-remains-unsolved/
Or as the chief investment strategist at BofA-Merrill Lynch puts it. “The ‘fire’ of zero interest rates and central bank liquidity continues to be doused by the ‘ice’ of deleveraging, regulation and deflationary technology innovation.”
Or is possible that financial markets are simply adjusting to reflect this new economic reality, rather than being complacent?
Edward Hadas, economics editor at the commentary website Breakingviews, believes that the world economy is in unchartered territory – so no one really knows what might happen.
“We are dealing with something we have never seen before: very low volatility in such uncertain economic times,” he says.
Low volatility is supposed to imply calm and confidence. But he sees no evidence that investors are not aware of the global economic risks. In the media and among the commentariat in the City, there are plenty of warnings that challenges remain.
Mr Hadas wonders if the low volatility is due to more mundane factors: the banks that provide most of the funding for traders are under capital pressure.
“The result is less activity, less volatility and a greater correspondence of markets with reality,” he said.
But he warns: “Sadly, the calm is probably temporary. Traders will re-group and become more active once they adjust to the new funding environment. And whenever economic reality does change sharply, investors can be counted on to overreact.”
http://www.bbc.com/news/business-27920419
A clue I do not have.
So I’m playing safe. I avoid bonds and buy shares and reits that I think can continue paying decent payouts, and I bank the payouts, not reinvest them. And I keep my spare cash in CPF. At this point in time, CPF pays the best risk adjusted S$ returns. Not saying much, though.
BTW experts were saying last Dec and in Jan that bonds and reits were history. They outperformed.
Here’s some gd advice from the FT when buying dividend stocks:
However, experts warn investors should not be lured by high dividend payouts from individual companies, as this can entail risk. Instead, they note that dividend growth can result in much higher returns.
“Chasing a high dividend is a risky strategy; the yield might look attractive, but the risk is the dividend gets cut and the share price falls further,” said Adrian Lowcock, senior investment manager at Hargreaves Lansdown.
“The share price may have already fallen to reflect expectations the dividend will be cut – meaning the yield would then have risen,” he added. “We saw this in 2008/09 when the banks all had high yields but were not going to be paying dividends for many years.”
Investors should instead look for growing income, as these companies are likely to be financially more robust, growing their capital base.
So maybe time to think about SMRT https://atans1.wordpress.com/2014/03/04/smrt-only-now-meh/?
And here’s a gd BT article on evaluating Reits: http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={651562920-19895-7719950079} High yields do not mean a Reit is an attractive buy, however. Yields are related to risk and growth potential, as investor Bobby Jayaraman pointed out in his 2012 book on Reit investing, Building Wealth Through Reits. The safer the Reit and the higher its growth potential, the lower its yields will be. This is because high demand from investors for these assets pushes up their price, thus lowering yields.
If you want to know more about the Reit structure http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={651939829-19894-8559931515}
“The government has underestimated the impact of high business costs on our future economy,” said Inderjit Singh (Ang Mo Kio), urging the government to set up a cost competitiveness committee to tackle the root causes of soaring costs before SMEs and MNCs relocate with jobs in tow. He also asked the government to reverse its land divestment policy, which he deems a key reason behind high industrial rents.
Companies are facing a “triple whammy” of rising rents and utility bills, growing wage costs, and a shortage of workers, said Mr Singh, himself a businessman. And this “chronic” cost issue does not affect SMEs alone. “The top management of some large MNCs here … have expressed their serious concerns about the unrelenting increases of the cost of doing business coupled with the unavailability of workers,” he said.
Iskandar’s industrial parks are a “huge threat”, he said. If Singapore’s SMEs are forced to move to Johor, MNCs may follow their SME suppliers and subcontractors. “The exodus may be larger than we imagine … We risk hollowing out our economy in the future, and I would like to sound an alarm that we are close to the tipping point.”…
Though he acknowledged that PIC and PIC+ would help with topline revenues growth, Mr Singh said: “We are just trying to do too many things too fast, and this is hurting many companies.”
Both he and nominated MP R Dhinakaran, who is also managing director of Jay Gee Group, pointed to rising industrial and commercial rents as a key culprit of the high costs of doing business in Singapore.
Citing Association of Small and Medium Enterprises president Kurt Wee’s comment at BT’s Budget Roundtable that rents rise as much as three-fold when leases are renewed, Mr Dhinakaran said: “In this economic climate, rental increases of this magnitude will be fatal for a large number of SMEs.”
Both Mr Singh and Mr Dhinakaran also linked the high rental costs to the government’s land divestment policy. “JTC was a landlord for 18 per cent of industrial property some 10 years ago, but today manages only 3 per cent of the market. This is a huge shift, and the government lost the ability to influence rental prices resulting in developers and investors making the money,” said Mr Singh.
“We have to reverse this policy, even if it means the government having to buy back some of the Reits. In any case, the biggest Reit players are government-linked entities like Mapletree and CapitaLand,” he added.
Denise Phua (Moulmein-Kallang) felt that certain cost increases – the restoration of CPF contribution rates for older workers, higher progressive wages for low-income earners and cost hikes due to tighter low-skilled foreign manpower policies – are justified, with “strong rationale”.
But she also said that business rents need “the touch of the State”, and asked the government to consider “cooling measures, especially for business rents”.
BT 5 March
Given that Ascendas (a GLC) is the biggest player in the industrial land arena: why do you think when the govt says this?
The government will intervene if it sees evidence of collusion or the abuse of market dominance by any landlord – including real estate investment trusts (Reits), said Minister of State for Trade and Industry Teo Ser Luck … in Parliament … calls for help with climbing business costs (and in particular, the affordability of business space) have grown louder both in and outside of Parliament in recent months.
Reits – some of which were formed after JTC and HDB divested space to private owners – have been blamed for shorter lease renewals and sharper spikes in rentals.
“We know that it has come up as an issue, many of you have raised it. We will monitor it,” said Mr Teo.
At the same time, he noted that “Reits are not necessarily the leading players in the rental space market, because they currently only own about 13 per cent and 16 per cent of retail and industrial rental spaces respectively. Like any other landlord, they have to compete in the rental market to attract tenants and cannot charge excessive rents”.
Mr Teo also said that rents for space are likely to moderate in the medium term, as the government has released a “significant amount of land”.
Over the next three years, about 145,000 square metres of new shop space will be completed each year. Over the same period, an average of 500,000 square metres of multiple-user factory space will come on-stream each year.
For the former, that represents more than double the average annual demand for such space in the last three years; for the latter, it is just under double.
(BT 7 March)
Silicon Valley S’pore style?
Entrepreneurship will also receive a boost, since by the end of this year, JTC will open two more blocks to incubate start-ups, as part of a cluster called JTC LaunchPad@one-north.
“It’s our answer to Silicon Valley,” said Mr Teo.
CapitaMall Trust recently sold retail bond offering paying 3.08% annually.
Its units trade at a yield of 4.55% as yet yesterday’s close.
The percentage difference (48%) between the two numbers is the willingness that holders of the units are willing to accept (whether they realise it or not) for the higher (but not assured) payout. If Reits, reduce their payouts, the price falls to compensate for the reduced yield. Even if the payout remains constant, high yielding shares are only a good investment if a falling share price does not undo the yield return.
As there are many other Reits that have better yields, reit investors should be mindful of the risk they are assuming in chasing higher yields.
FYI, I’m still a holder of Reits.
Relared posts:
— https://atans1.wordpress.com/2013/11/14/where-reits-can-go-wrong/
When ST talks down Reits, as it has been recently, because interest rates are rising, it’s time think again. Remember its big-balls up when Reits were at their (with hindsight) their peak in May last yr?
Here’s some stuff that appeared in reference with US Reits but is applicable here: While REIT investors did an about-face following the Fed’s tapering announcement, some industry experts say all the attention surrounding interest rates and REITs is unfounded. “Ever since May 22, there’s been this discussion about the role of interest rates in REIT returns – and it’s a very strange discussion,” said Brad Case, VP of Research with the National Association of Real Estate Investment Trusts (NAREIT) in a recent interview with CoStar News. “Because the truth is, when interest rates go up, it usually means the economy is strengthening. That’s good news for REITs and means that returns will be strong.” In support of this statement, Case pointed out that REITs have performed well in 12 out of 16 periods of interest rate increases since 1995.
But be prepared that they underperform other types of “shares”
While there is controversy regarding the degree to which interest rates affect REITs, Affleck pointed out that investors need to consider more than just how REITs perform when interest rates change. “The relevant measure is not whether REITs have done well during interest rate increases, but how they performed relative to the broader market,” Affleck said. “On that count, the data are definitive – REIT performance relative to the broad market is inversely related to interest rate movements.” Affleck added that REITs outperformed the broad market – gaining 27% compared to a 20% gain for the S&P 500 – when interest rates fell from 3.5% in March 2011 to 1.5% in April 2013.
Juz take the payouts and bank them. But remember that Reits, unlike shares, pay out most of the income they get.When things go wrong (higher borrowing costs, lower rents), payouts suffer. No buffer, unlike comnpanies dividends. In the worse case, can end up having to subscribe to rights issues because Reits don’t have reserves to draw on in hard times.
Related post: https://atans1.wordpress.com/2011/12/12/primer-on-yields-of-reits-biz-trusts/
[A] Monetary Authority of Singapore (MAS) report … warned that a rise in rates will hit Reits – and lower their dividends.
Reits own a portfolio of property and pay investors regular dividends out of their income – the property rentals received.
The central bank’s financial stability review noted that Reits need to distribute 90 per cent of any taxable income to unitholders.
So these vehicles have limited retained earnings and are dependent on capital markets and banks to meet their financing needs.
The MAS estimated that the ease with which Singapore-listed Reits would be able to pay their interest bills would fall markedly once interest rates headed north.
The median “interest cover” for Singapore-listed Reits would fall from 6.8 to 3.5 times if interest rates were to rise by 3 percentage points, the MAS estimated.
The interest cover is a ratio used to determine how easily a company can pay interest on its debt – the higher the ratio, the easier the interest can be paid.
The MAS also warned that higher interest rates would likely increase interest expenses and lead to lower dividend payouts. Reits might then appeal less to investors, capping their ability to raise more cash from capital markets.
On the bright side, the debt maturity profile of Reits is better now than before the global financial crisis in 2008 and 2009.
A smaller proportion of borrowings by Reits are due for refinancing in the next two years.
The MAS also issued a warning over the larger corporate sector.
“If interest rates were to rise from their currently low levels, firms’ debt-servicing burdens could increase significantly.”
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=1011063489-19666-9955500363
Don’t blame govt if Reits tank after you buy buy.
Possible gd alt to Reits for the KS: https://atans1.wordpress.com/2013/10/03/temaseks-fab-5-spore-blue-chips/. While the yields are not as high, some pretty lowish in fact, they are not highly leveraged and have maintained steady pay-outs. And think ComfortDelgro and even SMRT (fare rises leh)
Related post: https://atans1.wordpress.com/2013/11/14/where-reits-can-go-wrong/
Reits are back in fashion after the Fed delayed tapering. QE is still coming.
So bear in mind the following comments by Fitching Ratings (ST 10 October 2013):
Yet key risks remain, including high-leveraged Reits that borrowed more to take advantage of low interest rates.
Reits could also face refinancing issues if loans are not renewed or when asset values fall below what had been anticipated.
Rising supply could also hit industrial Reits, with more multi-user factory space coming onstream over the next two years.
This could depress rents and lower asset valuations, which would worsen the sector’s financial metrics, warned Fitch Ratings.
“This is particularly salient for the hospitality industry which is the most cyclical and leveraged of the Reits under Fitch’s coverage,” the agency stated.
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=412728214-19457-4491932987
I’m still long Reits, have no intention of selling yet, but am not a buyer. https://atans1.wordpress.com/2013/07/08/why-im-not-selling-my-reits-yet/. Look at dividend stocks. KS people shld look at Temasek Fab 5 and compare their dividends with waz available from CPF or govt bonds or S$ fixed deposits.
ST wrote last Saturday about S-Reits as follows, In short, this means that you would have got a better deal if you had bought in 2010 and 2011, compared to now.
However, buying now would still be better than if you had bought in May this year: At that time, the average yield of the sector was as low as 4.3 per cent, Bloomberg data shows.
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=493433871-18886-1315537690
Regular readers will know that in late May (here), two weeks in a row in June (here and here), I grumbled about ST’s “promotion” of Reits, saying it wasn’t the time to load-up on Reits.
As to whether to load up on Reits, I’m thinking about it. Let you know after I buy some, Or if I decide not to.
Related post: https://atans1.wordpress.com/2013/07/08/why-im-not-selling-my-reits-yet/
If you are blur about why the yields of different types of reits are different, read this https://atans1.wordpress.com/?s=Reits+%2B+primer. BT is not ST.
DBS Vickers likes Cache Logistics Trust, Suntec Reit and CapitaRetail China Trust, saying that “most of the negatives are already priced in” for these counters.
It also likes hotel owner CDL Hospitality Trusts, though technically, the vehicle is a stapled security rather than a pure Reit (ST report)
I’ve been long Reits since 2008.
Despite the recent turbulence, I’m still not a seller because the global economy (and S’pore’s) faces four potential outcomes: a return to healthy growth (in which case Reit incomes should rise); a low-growth, low-inflation period in the doldrums (in which case the income appeal of Reits should help); a return of rapid inflation (as a real asset, property should offer some protection and Reits offer property and leverage); or a deflationary slump. Only in the last case would property suffer. Three-out-of-four sounds good odd for any racing man. And the last in S’pore is impossible to imagine. Easier to imagine a S’pore where the PAP doesn’t form the govt.
As to whether I’m a buyer https://atans1.wordpress.com/2013/05/21/s-reits-why-stay-away/. Look at dividend yielding stocks.
BTW, since https://atans1.wordpress.com/2013/05/28/bad-timing-st-article-on-reits/, I’ve been told the Reits index is down about 14%.
BTW2: Still looking at Comfort Delgro. https://atans1.wordpress.com/2013/06/17/when-raising-fares-sbs-smrt-govt-dont-have-this-problem/ explains why it looks interesting.
Fee-fi-fo-fum; I smell the blood of reporters and analysts that were bullish on reits. Be they alive or be they dead, I’ll grind their bones to make my bread.
ST has finally given up promoting reits (something I’ve been bitching about recently here and here), reporting: MAYBANK Kim Eng Research has gone against the long-prevailing view and downgraded Singapore’s red-hot real estate investment trust (Reit) sector amid a period of increasing price volatility.
Reits have come under heavy selling pressure the past fortnight amid fears the golden days of low interest rates may be ending.
The FTSE ST Reit Index, which tracks the sector, dropped 1.68 per cent yesterday and is down 8.2 per cent since May 22, when the United States Federal Reserve’s chairman raised the possibility of ending its money-printing.
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=309678777-17695-45587420
Gee, less than a month and two bullish stories, ST is now reporting bearish news on reits. Even when I waz an equities salesman, I didn’t change my views so fast. ST Money Desk practicing to be salespersons.
But before rushing into reits, think. The prices of reits were helped by institutional equity investors* buying them for the yield. Now those who chased yields in the equity markets may switch into cyclicals and defensives, if they think the yield party is over. If so buying into reits may face a stampede out of reits, and then relative underperformance.
—
*Remember, bond investors don’t buy reits. They stick to bonds, moving to junkier bonds for yield. When cautious, they sell the junk and buy US govt bonds.
Opps ST nearly did it again. On Saturday, an ST headline screamed: “Buying opportunity after Reits rout”. http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={498059457-17610-6138972043}. Market overall was off 24.6 points (0.74%), while the reits’ index was off a marginal 1.1 point.
Could have been worse. The last time ST promoted reits, ““It was no different in Singapore, where the benchmark Straits Times Index sank 61.2 points or 1.8 per cent to 3,393.17, its worst one-day plunge in percentage terms since its 2.2 per cent reverse on May 7 last year” (“Markets tumble amid US, China fears”: ST headline. Didn’t have the balls to tell us, reits here were off about 5%”https://atans1.wordpress.com/2013/05/28/bad-timing-st-article-on-reits/
On a more serious note, ST shld not be promoting reits. True the yields are better than most plays, but reits are leveraged plays. Now is not the time to be bullish on reits.: https://atans1.wordpress.com/2013/05/21/s-reits-why-stay-away/
I’m still long but I got in in 2008 and 2010. I’ve been riding the run and collecting the payouts to pay for my expenses.
On 22 May ST screamed “Reits look like good bets to yield-hungry investors”
The opening para read “SINGAPORE real estate investment trusts (Reits) are among the hottest assets in town to own”.
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=332593593-17481-7717667817
On 23 May, Japan’s stock market fell by about 7%. “It was no different in Singapore, where the benchmark Straits Times Index sank 61.2 points or 1.8 per cent to 3,393.17, its worst one-day plunge in percentage terms since its 2.2 per cent reverse on May 7 last year” (“Markets tumble amid US, China fears”: ST headline. Didn’t have the balls to tell us, reits here were off about 5%*. They have since recovered slightly.
Fee-fi-fo-fum; I smell the blood of reporters and analysts. Be they alive or be they dead, I’ll grind their bones to make my bread.
For what’s it’s worth, I repeat my take first expressed here https://atans1.wordpress.com/2013/05/21/s-reits-why-stay-away/. But I’m not selling, yet, juz collecting the distributions, and watching to sell.
Update after first publishing: Juz read in FT that while the Topix index is down 10%, reits there down 1%. Seems investors want to own real assets, given that Japan wants to raise inflation.
Update, Update: However, there are three good reasons why stock markets, a few blips aside, will continue to grow for some time: central banks are scared; there is lots of money waiting to be invested; and returns on all other assets are low … Strapped to these three rockets, the market can still soar. Of course, Spain could yet go bust or China grind to a halt. There could be a natural disaster, an act of terrorism or war. History tells us a bust is waiting down the track, but while the world economy recovers and governments and central banks maintain their pledge to keep printing money, we should expect prices to rise.
Phillip Inman from Guardian
Here are gd reasons not to come into S-Reits or to buy more.:
http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=8173
Ong Kian Lin, an analyst with Maybank Kim Eng, wrote in a note dated March 22 that the recent S-Reit rally was not due to strong fundamentals but fuelled by inflated asset values from quantitative easing by the US Federal Reserve and ample liquidity.
He noted how retail and office property prices have gone up but rentals have been slow to catch up.
A Colliers International report reflected this divergence. As at the end of the first quarter of 2013, retail property rents in its areas of study have fallen from the previous quarter while capital values went up.
While maintaining a positive outlook for the retail and retail Reit sector, Savills’ Mr Cheong noted signs of trouble in that retail sales figures are trailing growth in areas such as tourist arrivals, population and inflation.
Retail sales fell 2.7 per cent in February. Tourist arrivals last year was 9.1 per cent higher than the year before. The consumer price index rose 3.5 per cent in February from a year ago. Total population growth was 2.5 per cent between 2011 and 2012.
The demand seen in the market right now is due to sentiment still being buoyant, Mr Cheong feels.
“At the moment it’s still rising, but it’s a binary issue. You cannot go and push to the tipping point, you push to the tipping point, everybody will bolt for the door like a fire in a cinema or retail mall. If everyone bolts for the door, everything will be vacated.”
NUS’ Prof Sing said retailers have increasing choices of malls. And the risk is that with greater choice, consumers may drift away from traditionally popular malls, leading to a downward spiral.
“When this happens, tenants will also start to move out. This cycle will continue, because you (as a manager) cannot pull in the crowd, I (as a retailer) cannot afford to pay such a high rent, I have to move out from the mall. So you put in another tenant that is not as good, so fewer people will come.”
Prof Sing and Knight Frank’s Mr Png said they are watching the Jurong East area, with several commercial and retail developments due for completion.
Retailers also have to cope with tighter foreign manpower policies.
“Much as the government would like to talk about productivity you find that retailers, the services business, is still very labour intensive,” Mr Png said.
http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid=4798875-17374-4688516258
Err the issue of inability to raise income could also apply across the board to office and industrial reits too, given the economic slow down. Price rises can only depend on yields going down. FTR, I own various Reits.
It prefers those with stronger earnings growth potential and/or have potential to deliver earnings surprises. Preferred S-Reits are Perennial China Retail Trust (PCRT), MGCCT and Cambridge Industrial Trust based on their upside potential.
PCRT is seen as attractive due to its valuations and earnings visibility as operations are ramping up at its malls. New development assets are also completed and seen generating cashflow. Target price is around $0.84.
MGCCT offers investors “an attractive opportunity to own iconic, best-of-breed commercial assets”. The trust has resilient cashflow with strong organic growth drivers. The target price at $1.18.
As for Cambridge, its completed acquisitions and asset enhancement initiatives (AEIs) are expected to contribute positively. Its target price is seen around $0.93. I personally am not comfortable with Cambridge because it lacks a tai kor.
It advises investors who benefited from price gains in Mapletree Industrial Trust, AReit, Suntec Reit and Parkway Life Reit shares, to consider selling these.
S-Reits delivered the region’s highest dividend yield as at the end of last month, the latest month-end Asia Index Report produced by the FTSE Group has noted.
The FTSE ST Reit Index and the FTSE EPRA/NAREIT Singapore Reits Index ranked highest in terms of dividend yield and lowest in terms of volatility, relative to their regional counterparts.
.
In SunT, the headline screamed,”Market risks ‘seem less threatening this year'”. Oh, dear. If ST reporters and editors are getting less cautious, isn’t this a contrarian sign. Maybe? But to be fair the forecast was made by a UOB Asset Management executive.
So far, as well documented here, I’ve been emphasising buying stocks with sustainable dividends or payouts, decent yields (slightly above our 5% inflation rate), with the possibility of capital appreciation. I’ve been long on smaller cap S-Reits that have tai-kors with money for several yrs. I’m not a buyer at these levels, but neither am I a seller. I’m a nervous holder. Until you cash out, the profits can evaporate. Taz why good, sustainable yields are important. But that means taking on more risk: Reits are not a play safe investment. Their gearing and the requirement to pay out 90% of their earnings, could result in investors coughing up in rights issue more than they got in payouts. Taz the reason for my nervousness.
Stocks on my watch list are SBS and SMRT. But they’ve been on my to buy watch list for three years already.
The reason for the highest yield spread for SReits against other markets is due to the proportion of industrial, healthcare or emerging market REITs within the index.
In the case for Singaporean industrial properties, these are leasehold interests so the yield profile against Japanese assets is always going to be higher. Did’nt know that abt Jap assets
Hotels, Indonesian/Indian healthcare/retail properties trade at higher yields than office & retail properties.
So basically although the SReit index trades above its peers – there is a reason for it! And should not imply that SReits are cheap.
A reader made this comment on https://atans1.wordpress.com/2013/01/10/s-reits-cheong-all-the-way-says-ocbc-sec/
Especially industrial Reits ’cause of the 7% yields.
“Looking into 2013, we believe S-REITs would likely retain their shine, underpinned by three key drivers. First, the sector offers the highest yield spreads among its peers in other major markets. Second, S-REITs are likely to be in favour amid the uncertain macroeconomic outlook, given their defensive low beta nature. Lastly, the outlook and financial position of S-REITs are generally positive, which should translate to firm performances going forward.”
I wouldn’t be a seller, but I sure am not going to add to my exposure to Lippo-M, AIMSAMP or Fraser Commercial, or to buy any other reit. But watching like a hawk to find a reason to sell.
The demand for S-reits is resulting in falling yields.
But the demand is underpinned by macroeconomic uncertainties that are expected to linger, and the fact that S-Reits’ yield spread remains one of the highest in the world, when compared to other major Reit markets, said Credit Suisse in a report issued on Thurday.
“In our view, S-Reits still offer an attractive investment proposition given yields of 5-6 per cent on average,” said Credit Suisse.
The weighted-average yield for S-Reits trading above US$1 million per day is at 5.5%, which implies that a further yield compression of 50 basis points should easily translate into about 10% share price appreciation, offering a total return of about 15%, added Credit Suisse.
The only problems, I have about trimming my portfolio is that that I hold “risker” Reits, and the payouts could increase.
But it’s “watch and watch” from now one.
OCBC Investment Research raised its fair value on Frasers Commercial Trust (FCT) to S$1.31 from S$1.23 while maintaining its “Buy” call. The interest savings arising from the early refinancing of a S$500 million loan facility and stronger rental income after the acquisition of direct tenant leases at China Square Central are also positives, OCBC Investment said. And after selling KeyPoint for S$360 million (US$292.7 million), FCT is likely to sit on net proceeds of S$357.8 million and book in a gain of S$72.8 million. Frasers is likely to use the bulk of the sale proceeds to redeem half of its series A convertible perpetual preferred units and reduce its existing debt, OCBC said.
DBS Vickers says, “We continue to like FCT due to its stable income profile and the positive impact coming in from its management execution, as evident in Causeway Point’s enhancement strategy. Thirdly, given that it’s trading above book, we see opportunities of inorganic growth.” What the last means is that FCT can issue new units to acquire properties.
Then there is Suntec REIT, with DBS Vickers citing its attractive yield and the positive earnings impact in the medium term from its asset enhancement initiatives.
Maybank Kim Eng, which earlier this week upgraded its rating on the REIT to “Buy” from “Hold”, while increasing its target price to S$1.66 from S$1.42, agrees citing as positives the progress of refurbishment work at Suntec Mall and Convention Centre and the near complete occupancy of its office portfolio against the negative of a looming supply glut.
FYI1, AIMS AMP Capital Industrial Reit portfolio value has risen by 5.6 per cent, said the Reit on Tuesday. Based on the new valuation made on September 30, 2012, the Reit’s portfolio is now valued at S$965.7 million. Its previous valuation was on March 31, 2012.
FYI2,Bloomberg reported last month that the local REIT market has led the global league table so far this year, returning an average 37 per cent. That is twice the gains in the United States, United Kingdom and Japan, according to Bloomberg data, and better than Australia, which advanced 24 per cent.
Background info
Lippo Karawacial is First Reit’s financial sponsor: “On 11 December 2006, Lippo Karawaci became the first company in South East Asia to list a Healthcare REIT on the Singapore Stock Exchange with Indonesian assets. Assets in the First REIT includes the Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Surabaya, Siloam Hospital Cikarang, Mochtar Riady Comperhensive Center and The Aryaduta Hotel and Country Club Karawaci, and four Singapore based properties.”
https://atans1.wordpress.com/2012/07/20/first-reit-nav-revision-bonus/
Now the bearish news
One of the sources told Reuters that first-round bids were below expectations, but the sale process will continue to give the buyers an opportunity to bid higher. It wasn’t clear how much the bidders had offered for the stake in the first round.
Blackstone, Bain Capital, KKR & Co and Dubai’s Abraaj Capital have been shortlisted for the second phase of an auction of a fifth of private Indonesian healthcare operator Siloam in a deal that could fetch as much as $300 million, sources said.
Seller PT Lippo Karawaci is seeking a valuation of more than 20 times Siloam’s forward core earnings for the stake, they said, declining to be named as the discussions were private. Siloam is the country’s biggest private hospital firm.
“Lippo may be back in the market next year if the valuation disparity is too big,” said one of the sources.
…
Lippo plans to sell a minimum 20 percent of unit Siloam Hospitals for between $200 million and $300 million, but could increase the stake to 49 percent if the price is right. It hired Bank of America Merrill Lynch to run the auction, sources have told Reuters earlier.
So there may be no revision of First Reit’s NAV https://atans1.wordpress.com/2012/07/20/first-reit-nav-revision-bonus/
Might even be revised downwards. But Global buyout firms are keen on Indonesia’s consumer and healthcare sectors despite steep valuations, as they are betting on the country’s fast-growing economy.
Indonesia has one of the world’s lowest healthcare spending-to-GDP ratios, but its rising middle class – which represents more than half of its population of 240 million – is expected to sharply increase its medical spending and drive growth in the sector over the coming years.
“The healthcare sector still continues to remain the darling of private equity. Even with rich valuations it is easy to find bidders for this sector,” said Krishna Ramachandra, head of corporate finance and investment funds at law firm Duane Morris & Selvam LLP.
But a growing number of investment banks are advising clients that south-east Asian rivals such as Malaysia and Thailand now look more enticing than Indonesia. Morgan Stanley and Credit Suisse say the Indon economy is overheating. Barclays is relaxed abt the “problems”.
Here I prophesised that Far East Reit would be forced to increase the expected yield on its trust from a niggardly 6-6.5%.
Well Morocco Mole (sidekick to Secret Squirrel) tells me that the Reit, which owns hotels and serviced residences in Singapore has not changed its pricing, despite CDL’s yield of 6ish% and Ascendas Hos of almost 8%.
So don’t subscribe if you are hoping for a pop in the price on listing day. CDL looks a better yield play. Got public track record.
Related post: https://atans1.wordpress.com/2012/07/30/ascendas-hospitality-trust-surprises/
Ascendas Hospitality Trust (A-HTrust) closed at its issue price last Friday. Considering that the public offer was about 6.9 times subscribed and yields projected at 7.9% (FY13) and 8.0% (FY14), while CDL’s is 6% (admittedly that is trailing) and strong demand for the placement, I expected the securities to close higher.
Maybe it’s the structure? The A-HTrust is a ‘stapled security’ comprising the Ascendas Hospitality Business Trust (80%) and the Ascendas Hospitality Real Estate Investment Trust (20%).
Mr Tan Juay Hiang, chief executive, Ascendas Hospitality Trust, said earlier last week: “The REIT structure does allow unit holders and investors to enjoy a more tax efficient structure. And the business trust will allow the platform to look at the potential development projects, unlike the REIT there is a limitation. So on a staple securities basis, it does provide quite a fair bit of benefits for unit holders and investors.”
Maybe it’s because the trust said it’s looking at acquisitions to grow the value of its assets going forward. Rights issueS, more debt?
Maybe because as analysts said there are downside risks to hospitality trusts as the tourism market is highly sensitive to global downturns. Projections could go wrong.
Maybe it shouldn’t have allotted an additional 73.4 million securities to the placement tranche of its initial public offering in Singapore as part of its overallotment process?
Update on 31 July: Another reason could be that the assets are outside S’pore and investors place a premium on S’pore based assets. The reverse of the govt’s “FTs are betterest” policy.
Anyway, means the coming Far East Reit got to redo its sums again about being cheapskate https://atans1.wordpress.com/2012/07/24/far-east-reit-cheapskate/
Keep an eye on A-HTrust. Could be worth adding to portfolio for yield and capital appreciation. I like the combi of biz trust and Reit, though not sure if it will work in practice. Got to research the issue.
Far East Reit which owns hotels and serviced residences in Singapore, is being marketed at a yield of 6-6.5% Compares unfavourably about 7.9% offered for Ascendas Hospitality Trust (at issue price: expect it to fall to 6ish level when trading starts i.e. price moves up) and 6% for CDL Hospitality Trust
http://www.reuters.com/article/2012/07/20/us-fareast-reit-ipo-idUSBRE86J04L20120720
Bet you the yield will have to be improved (giving room for some capital gains) for the institutions.
Indonesia’s PT Lippo Karawaci may sell as much as 49 percent of its unit Siloam Hospitals in a deal that would value the firm at more than $1 billion, drawing a slew of private equity firms to the sale as they bet on growth in healthcare spending in Southeast Asia’s biggest economy, sources said. Reuters
There is plenty of US private equity market sloshing around the region as article explains. And the IHH IPO and the coming one by Fortis (Religare Heath Trust) will ensure that the animal spirits of these investors remain bullish.
The Indon co is First Reit’s financial sponsor: “On 11 December 2006, Lippo Karawaci became the first company in South East Asia to list a Healthcare REIT on the Singapore Stock Exchange with Indonesian assets. Assets in the First REIT includes the Siloam Hospitals Lippo Village, Siloam Hospitals Kebon Jeruk, Siloam Hospitals Surabaya, Siloam Hospital Cikarang, Mochtar Riady Comperhensive Center and The Aryaduta Hotel and Country Club Karawaci, and four Singapore based properties.”
Kinda painful for me as I didn’t buy this Reit. Really dumb as I kept waiting price to correct. I aim to buy a Reit that is trading at a big discount to published NAV. The discount was smallish and now has disappeared. Big premium in fact.
“FCOT sold a S$10 mil yielding KeyPoint for S$360 mil and bought a S$10 mil yielding Caroline for S$113 mil!”
Effectively it’s get the same yield but reducing the capital used by 31%, releasing the balance of 69% for hopefully more proftable use. Great financial engineering. F&N’s chairman should tell his sis-in-law at Temasek to pay F&N and FCOT to teach Temasek financial engineering.
And great insight by Investment Moats: worthy of a Buffett.
Bad PR by FCOT. It should enhance shareholder value be publicising its financial egineering skills.
Though must point out that the returns in Caroline’s case are in A$. Nevertheless …
But given that FCOT was gifted the Alexandra Technopark by F&N when F&N was trying to salvage its investment in FCOT during the financial crisis, there’s a danger that FCOT may have to return the favour. I was surprised that F&N shareholders did not kick up a fuss as the valuation then looked rather low, even taking into account the crisis. But then the property is “peanuts’ in relation to F&N’s assets. So there’s a gd chance that F&N would not ask FCOT for a favour.
As to the best use of the Keypoint money, redeem the convertibles in full: increasing leverage. Rely on F&N’s balance sheet: maybe pay it a fee for “renting”. Worst case: rights issue again. But then I’m a bit of a gambler (like the cowboys and cowgals at Temasek), even if I invest in Reits for the yield. Some habits die hard.
Almost no coverage from analysts, so this might interest http://sreit.reitdata.com/2012/05/25/cambridge-dmg-4/
The yield is great, the gearing levels are ok but the lack of a big, conservative brother scares me. In times like this, need a big, stodgy brother like F&N, Keppel, or AMP; or effectively zero gearing (Lippo trusts). I consider CapitaLand too racy for me despite it’s a TLC.
This article (“Residential properties have been the most popular among investors based on its stable return,” said Ishinabe. “Since last year, investors have expanded their interest into other types of properties such as office buildings and commercial facilities.”) on two bulls in Jap commercial property despite supply a’coming reminded me of u’m post on Saizen Reit that tot me the basics of this residental property Jap Reit.
Reits have a new tool to juice up returns: perpetual securitiesor perps. Could “leverage up” without “debt”. Shld not technically use the word “bonds” even though they are effectively bonds.
Could be burps if shumething goes wrong.
The central bank is worried that retail investors may not understand perps*. I’m worried reit managers may be seduced by investment bankers to use perps indiscrimately. Us investors get shafted. So invest in reits where the sponsor is big, stodgy and conservative (like F&N, or AMP), and has a big stake in reit. If sponsor doesn’t meet the first criteria, think long and hard. I did in case of LMRT, and bot in.
Update: Comments on ST article abt central babk’s stance.
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*Bankers said MAS officials had voiced their concerns over retail holdings of perpetual bonds during at least two informal meetings in recent weeks.
The central bank’s scrutiny is preliminary and there is no suggestion of any wrongdoing on the part of the banks or companies involved in the recent flurry of perpetual bond issues. But the discussions show that the regulator is worried individual investors may be taking on too much risk without a full understanding of the product.
http://www.todayonline.com/Business/EDC120515-0000049/Perpetual-bond-rush-causes-alarm-in-Spore
Never summed up the courage to buy MIIF because although it is a China infrastructure play, yirld is super, and MIIF is net cash, its underlying investments are up to their eyebrows in debt: could affect MIIF’s payouts, NAV and price. But chk out for yrself http://www.investmentmoats.com/money-management/dividend-investing/amfraser-have-some-seriously-optimistic-cash-flow-projections-for-miif/
For the working stiffs who got cashflow from day jobs. Not for retiree who gambled his cashflow.
CIMB likes Frasers Commercial Trust I own shume.
Update: DBSV likes FCT too http://sreit.reitdata.com/2012/05/18/fcot-dbsv-3/
http://sreit.reitdata.com/2012/05/02/a-itrust-dbsv/ (Ya I know technically it’s not a Reit, but it looks like one.)
So am I. )))). BTW, the Indian rupee has strengthened after the government said on Monday that it would delay proposed laws targeting tax avoidance by one year.
http://sreit.reitdata.com/2012/05/02/lmir-ocbc-14/
So am I. But Indonesia’s economy grew at its slowest pace in 18 months amid a slowdown in exports as demand from key markets such as the US, Europe, China and India weakened.
Worse, the Indonesian rupiah has fallen 8% against the US dollar in the last twelve months: a weak currency may hurt the purchasing power of domestic consumers and dent demand. Remember domestic consumption accounts for nearly 60% of its economy. http://www.bbc.co.uk/news/business-17980123
Other analysis, info on LMIRT:
http://s-reitinvestmentblog.blogspot.com/2012/05/analysis-of-lmir.html
http://diyvalueinvesting.blogspot.com/2012/04/lmir-q1fy2012.html
(Or “S-Reits: Is an amber light flashing?”)
Regular readers will know that I’m up to my eyeballs in Reits (AMP, Fraser, Lippo and Ascendas India, ya I know AI is a biz trust, but it’s a Reit except in form). Greedy for the yield, what with inflation at above 5%. And no high salary to fall back on. In fact no salary at all. (((
Generally Reits are up 10% in 1Q, and taz without taking into account the payouts! So I’m not complaining.
But I’m getting concerned abt future total returns (price + payouts) when the expected appreciation of the S$* is given as a reason to buy Reits. “If they [investors] expect the dollar to appreciate … there will be more interest in Singapore-dollar-denominated assets … Reits that are listed in Singapore and traded in Singapore dollars will benefit as well,” someone senior from SIAS Research was quoted by MediaCorp as saying recently. And remember that SIAS is the self-proclaimed watch dog for retail investors!
WTF, ever heard that quite a number of Reits are diversified geographically, or are exposed to a specific country like India, China or Indonesia? If a Reit has oversea income, that income would be “reduced” when translated into an appreciating Singapore dollar.
Anyway, as of last week, DBS Vickers liked Mapletree Logistics Trust, Ascendas India Trust and Frasers Commercial Trust. These were Reits to accumulate ahead of payout declarations because it expected the payouts to exceed mkt expectations.
CIMB favoured CapitaMall Trust and Frasers Centrepoint Trust for their retail exposure and strong growth potential. And OCBC prefered industrial REITS, which offer yields in excess of 8% to outperform.
But do remember that unlike companies, Reits have by law to payout out 90% of their income. There is no such thing as keeping something for “a rainy day”. Something that “dividend stocks” like Haw Par, SPH or F&N do. With a Reit, if income drops, the payout drops and the share price will drop to reflect the reduced payout.
As a Reit investor, you got to sell when the going gets good, or be prepared to hold it through down-cycles and be prepared to cough up monies then for rights issues to shore up the financials. Net-net, could use up the payouts you got in gd times.
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*Following the recent announcement by the central bank to allow the Singapore dollar to appreciate at a faster pace.
Even Bangkok punters play the yield game.
I invest in Reits for the yields and the brokers and local media have discovered Reits as a great defensive play. But SMEs claim that Reits have caused their rentals to escalate unreasonably. JTC has been asked to review its current policy of divesting industrial space to private entities (like its Ascendas).
Business Times – 02 Feb 2012
SMEs blame Reits for growing rental pains
JTC asked to review its current policy of divesting industrial space to private entities
By MINDY TAN
(SINGAPORE) Rising rentals for commercial and industrial space have emerged as a pressing issue for small and medium enterprises (SMEs), and the fingers are pointed squarely at the dominance of real estate investment trusts or Reits as landlords.
The Reits’ drive to enhance yields and returns for unit holders – which usually translates into rental hikes – have left many SME owners, who feel they have limited alternatives here, fuming.
It has also led to calls – including a recommendation by the newly formed SME Committee – for JTC Corp to review its current policy of divesting industrial space to private entities like Reits and return to its previous role of an industrial landlord, so that it can provide ready and affordable industrial space to SMEs.
‘Rentals and capital values of properties are going up, impacting business costs for SME owners and eating into their bottomline,’ said Lawrence Leow, chairman of the SME Committee.
The u/m is an extract from a BT article written by Teh Hooi Ling. Senior Correspondent and CFAer, published on 3 December 2011. It gives some very interesting insights on the yields offered by the various types of Reits, shipping trusts and other business trusts*. (Note some bad news for shipping trusts)
Thanks BT, Ms Teh and the unnamed fund manager, “Merry Christmas and a Happy New Year”.
For investors who are keen on Reits and other business trusts, here is some advice from a fund manager friend on how to go about picking the right ones.
Industrial properties usually have 30-year leases, or 30+30. Assuming a 30-year lease, it means it depreciates at a rate of 3.3 per cent pa, versus one per cent pa for a 99-year lease for a retail or commercial building. So the yields for industrial Reits have to be up to 2.3 per cent pa higher than retail or commercial Reits. Usually however, it is less due to the time discount factor.
‘Ships are usually scrapped after about 25-30 years. I think typically they are depreciated over 15 years or so. Even if ships are scrapped after 30 years, shipping trusts should command a higher yield than industrial Reits because the ship lessee can ‘disappear’ with the ship, but not the industrial building tenant.
‘Hospital Reits like Parkway Reit is a rare breed as its revenue is based on a consumer price index formula. You can think of it as having zero vacancy rate (but the main issue is counterparty risk). So given the same counterparty risk, it should trade at a lower yield than retail Reits, which should trade at lower yields than commercial Reits, given the same tenure (because it’s easier to lease out retail units).
‘In turn, commercial Reits should trade at lower yields to industrial, which should trade at lower yields to hospitality (as vacancy rates of hotels/service apartments can be quite high during recessions).
‘Hospitality Reits should trade at lower yields to shipping.
‘But note that industrial can trade at higher yields to hospitality as the former has shorter tenures.
‘As for Hutchison Port Holding Trust and SP Ausnet, I would value them as companies rather than Reits, as usually the rates they charge are prone to fluctuations – unlike Reits and shipping trusts which usually lock customers up for years.
‘SP Ausnet is not structured even as a business trust and pays its dividends out of net profit rather than cash profit. I think every year, it pays out the same dividend per share even though its earnings fluctuate. I would value it the same way I value SingPost.’
Note that unlike a company, a Reit cannot maintain payouts if it hits a bad patch because, at least, 90% of net income has to be paid out. While this is not true of biz trusts, their attraction is that they promise to pay out most of their free cashflow. Companies usually pay out only a portion of their net income, hence there is something in reserve, if they hit a bad patch, and dividends can be maintained for a while more. Hence the importance to investors of what analysts call “dividend cover” which shows how many times over the net income could have paid the dividend. For example, if the dividend cover was 2, this means that the firm’s profit attributable to shareholders was two times the amount of dividend paid out. Not true of Reits, and biz trusts. Got problems, payouts get cut.
*Related post: https://atans1.wordpress.com/2011/12/10/reits-and-business-trusts-similarities-differences/
In Reits, property assets are held in trust by a trustee and a separate manager is appointed to manage the Reit. The rental income is used to pay out dividends to unit holders.
Like a Reit, the business trust is created by a trust deed. The trustee has legal ownership of the assets, and is also the manager. The business will be in a sector that provides stable income like utilities.
Reit or Business Trust by MoneySense looks at the two different structures in more detail and also spells out the key differences.
Our constructive, nation- building media are promoting Reits as “safe” investments, so maybe it’s time to read or reread “Initially, I wanted to title this post “The Disastrous Singapore REITs Model” but decided otherwise”, written late last year?
It analyses what went wrong in the S-Reit sector in the period up to massive rights issues in 2009.
In a report issued last Thurday, CIMB identified K-Reit Asia, Frasers Commercial Trust (FCOT), Ascott Residence Trust (ART) and Suntec Reit as those likely to engage in equity fundraising in the near future. “The first signs of more cash calls to come have surface.”
The Reit industry is stronger than it was three years ago, CIMB said. Across the sector, the proportion of short-term debt to total debt stood at 8% in September, much lower than the 38% in June 2008. With reduced pressure from short term liabilities, Reits are less likely to make cash calls, even if the industry’s average gearing did climb to 36% (from 34% in 2008). But some Reits -(especially those in the office sector) could be vulnerable to asset devaluation as a downturn looms. Lower property values push up gearing ratios.
According to CIMB K-Reit, ART and Suntec Reit had gearings of 42%, 41% and% respectively at end-Sept, higher than the average of 36%.
The risk of a cash call is greatest for K-Reit. Its aggregate leverage remains high despite a massive rights issue (17 for 20) now underway to fund the purchase of Ocean Financial Centre from parent Keppel Land, and 20% of its debt is due for refinancing next year.
ART not only has high leverage but its European assets could see a devaluation, raising its leverage- a vicious cycle. But if it divests Somerset Grand Cairnhill, which has provisional approval for redevelopment into a residential and hotel project, a near-term cash call could be avoided.
Suntec Reit may not need a cash call until it is ready to acquire Phase 2 of Marina Bay Financial Centre and its capital expenditure needs could be partly met by proceeds from selling Chijmes.
FCOT is a potential candidate for a rights issue because of its relatively high leverage of 37% and low interest coverage ratio. Also, all of its debt is maturing next year. But it could divest KeyPoint. Given F&N as its “big brother”, it could refinance its debt at lower interest rates.
But CIMB believes that Reits are still safe, maintaining its ‘overweight’ call on the sector.
Last week, Credit Suisse issued a report on industrial Reits. Excerpts from report’s Executive Summary.
Not as defensive as perceived: We assume coverage of the Singapore industrial Reits sector with a slightly negative stance as we believe that the perception of its defensiveness (due to longer lease tenures) is misplaced.
… we have done thorough analyses on the factory, business parks and warehouses sub-segments, and conclude that we are most positive on the warehouse sector fundamentals.
… flat to low single-digit growth for factory rents driven by high occupancy, and business park rents to moderate due to the oncoming supply pressure (including new supply of decentralised office space).
Potential weak demand may slow rental growth: Singapore industrial rents have surpassed pre-sub-prime crisis peaks and are at 10-year highs.
… upside is limited from here on, given the moderating economic growth outlook, Singapore’s high exposure to the US and European economies and the appreciating currency which will reduce Singapore’s competitiveness as an industrial location of choice.
However … the few less labour-intensive, higher value-add fields, and sectors/ players with better pricing power, like biotechnology, water technology, environmental/energy sciences will likely be less impacted by cost inflation.
This should underpin rental growth for the class of industrial assets exposed to these sectors.
… expect rents in (logistics) warehouse – our preferred industrial sub-segment – to continue to remain strong on the back of fairly strong 90-91 per cent occupancies based on limited supply completion over the next three years. While supply for all factories over the next five years looks manageable, at 9-10 per cent of existing supply of 332 million sq ft NLA for factories and business parks … rents for older-specs factories could come under pressure especially given current economic uncertainties, which will likely impact SMEs and less cost-efficient companies (those at the lower end of the value chain).
… hi-tech and business park rents to moderate, due to the oncoming supply of business parks over the next four years amounting to 29 per cent of existing supply, coupled with existing high vacancies.
M&A increasingly challenging: Despite the supportive capital-raising environment, in our view, with cap rates continuing to compress on the back of rising competition for land (as industrial assets have the highest yields), … becoming increasingly challenging for a Reit to make an accretive acquisition, particularly in Singapore, where capital values today are at 10-year highs.
Based on our analyses of Ascendas Reit (A-Reit), Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT), we conclude that (1) A-Reit has the most debt headroom with $1 billion available for future acquisitions; (2) A-Reit and MLT both have the strongest acquisition pipeline, with $1 billion each of injection pipeline from their sponsors; and (3) MINT and MLT have the highest risk of placement, depending on the size of transaction given their gearing levels of 39.3 per cent and 40.6 per cent, respectively.
Three investable names, at this stage: After screening for market cap of over $1 billion and liquidity of US$1.5 million/day, only three of the seven industrial S-Reits are deemed investable: A-Reit, MLT, MINT.
We believe stocks are currently priced for a slowdown but not a recession. Our strategy would be to adopt a stock picking strategy in the property sector. Within the office segment, office landlords are trading in excess of -1 standard deviation to historical RNAV discount while S-Reits are trading at less than 1 SD to the long-term yield.
We believe office stocks have more than priced in the muted outlook and valuations appear attractive currently. While we have widened target price (TP) discounts and lowered TP for landlords given the higher risks going forward, upside to our TP remains significant.
Our top picks remains Keppel Land and UOL. Keppel Land is currently trading at 46 per cent discount to RNAV of $5.57 and offers 40 per cent upside to our lowered TP of $4.18.
We remain positive on UOL, thanks to its multiple growth engines that spans commercial, residential as well as hospitality. Our TP of $4.96, based on a wider 20 per cent discount, offers 9 per cent upside. We have lowered our call on Singland to Hold due to its large 75 to 80 per cent exposure to the office sector.
In the recent equity market sell off, the FSTREI (S-Reit index) while corrected by some 5 per cent versus the 12 per cent and 25 per cent fall in the STI and FSTREH (property developers index) respectively. S-Reits now offer a prospective FY11-12F distribution yield of 6.5-6.7 per cent, which represent a 500 basis points spread above the long-term government bond. It is now closer to -1 standard deviation of the sector historical yield trading range. We believe that S-Reits continue to offer a compelling investment proposition.
We reiterate our preference for retail Reits. Even in the event of an economic downturn, retail Reits’ exposure in necessity shopping (eg supermarkets, F&B outlets) have kept earnings fairly stable. Industrial S-Reits also offer strong stability and visibility given a larger proportion of their income deriving from master-lease structures. While we continue to see hospitality Reits delivering good numbers going into a seasonally busier 2H11, we believe that growth momentum should be slowing down.
We see value emerging in CapitaMall Trust (Buy, TP $2.05) which is our big cap pick with attractive FY11-12F yields of about 5.3-5.9 per cent. Mapletree Commercial Trust (Buy, TP $1.09) is attractive for its strong organic growth coming off from a first renewal cycle at its VivoCity retail mall. Among the industrial Reits, Mapletree Logistics Trust MLT (Buy, TP $1.07) stands out post an active H1 FY11 and is poised to deliver strong earnings growth into H2 FY11. We continue to see relative value amongst the smaller cap S-Reits – Cache (Buy, TP S$1.07) and Frasers Commercial Trust (Buy, TP $1.05), which offer higher than average yields with limited earnings downside.
S-Reits are the flavour of the moment. Witness this gushing report.
“The current yield gap between S-Reits and the 10-year government bond is attractive to us at 5.1 percentage points versus 0.8 percentage point during the 2007 boom, and an average of 3.4 percentage points over the past seven years,” said Royal Bank of Scotland analysts in a report last week.
The report put S-Reits yields for 2011 and 2012 at 6.7 per cent and 7.1 per cent respectively. The high yields now being provided by S-Reits are well supported by a stable rental outlook, low interest costs and acquisitive growth potential, the RBS analysts said.
RBS has an ‘overweight’ call on the S-Reit sector.
As reported earlier https://atans1.wordpress.com/2011/08/21/cimb-on-reits/, CIMB is “neutral” on developers as a whole but “overweight” on S-Reits.
So what can go wrong? Nomura Singapore said that one of the current concerns of investors in the Reits space is the potential risk of recapitalisation if asset values were to fall significantly. In simple English, investors are afraid of rights issues if the gearing of Reits goes sky high if property values supporting the loans collapse. This happened in late 2008.
Even if property values don’t collapse, Reits could face banks refusing to renew their credit facilities, and asking for their money back if the banks face a liquidity crunch. This too happened in late 2008.
CIMB loves them based on a research note dated Aug 18 2011 where it called for an “Overweight” on the Reit sector.
CIMB recently hosted nine Singapore and Malaysia real estate investment trusts (Reits) at our inaugural Asean Reit conference. While investors were generally not pricing in a double dip, most appeared increasingly cautious.
Coupled with value emerging from the recent selldown, we sensed increased interest in Reits, with a particular preference for those in more resilient segments like industrial, retail and healthcare.
Our top picks are Ascendas Reit, Frasers Commercial Trust, Starhill Global Reit and Cache Logistics Trust. We also like CapitaMall Trust and CDL Hospitality Trust at current valuations.
During the conference, we sensed increased caution among investors after the recent market selldown, with more turning to S-Reits given increased risk aversion. Most Reits also gave the feedback that they had been receiving more investor interest and enquiries. While turning cautious, investors were not yet pricing in a double dip.
Questions centred on rental growth and expansion via acquisitions or development. Most agreed with us that S-Reits have emerged with stronger balance sheets and portfolios from the last crisis.
Recent market volatilities and developments in advanced economies have not affected Reits yet.
Notwithstanding slowing growth in advanced economies, industry participants remained positive on growth in the region. However, most would be monitoring developments closely.
Industrial Reits continued to expect positive rental reversions on the back of rising spot rentals and rental step-ups. Investors liked the stability from industrial leases but were slightly wary of a seeming slowdown in manufacturing in Singapore.
Industrial S-Reits, however, noted that manufacturing remains a core component of Singapore’s economy and continued to see bright spots as local manufacturing transitions to higher-value-added products and services.
While spot rents for most office S-Reits remained healthy, more investors were starting to question rental growth next year. We noted a moderation in tone among the office S-Reits, on the back of a slowing leasing momentum, significant physical completions in 2012 and potential growth concerns. Most expected rental growth to be more moderate in 1H12, before picking up again in 2H12 as supply tightens in 2013.
Most Reits are still keen to grow through acquisitions. Opportunities are, however, limited with the system still flush with liquidity.
Industrial Reits noted a difficult acquisition environment, given increased competition from new entrants such as private funds, smaller players and other industrial Reits. Most were thus gravitating towards development (mainly build-to-suit) and redevelopment, given their enhanced yields, the small capital outlays, short gestation periods and Reits’ ability to mitigate leasing risks by building to suit.
Similar concerns on compressed yields and a lack of quality assets for acquisition were expressed by the office S-Reits.
Citi continues to prefer Singapore Reits over developers, because of the current uncertain economic environment. “Despite attractive valuations, continued policy risk implies that it remains difficult to suggest picks within the real estate developer space”.
Citi prefers Reits that are operationally more defensive, including retail Reits such as Mapletree Commercial Trust and Fraser Centrepoint Trust, where passing rental rates are below market ones.
On I August 2011 when FCOT was at $0.88 (note I own some shares), CIMB came out with report where it maintains ‘outperform’. Q3 2011 distribution per unit (DPU) of 1.38 cents meets our forecast and Street expectation at 24 per cent of our FY2011 figure. 9M 2011 DPU forms 74 per cent of our estimate. DPU was up 10 per cent y-o-y on stronger net property income (NPI) contributions from almost all its self-managed assets mainly on better occupancy. Occupancy at KeyPoint had improved for the ninth consecutive quarter.
An improving underlying portfolio at China Square Central meanwhile should position Frasers Commercial Trust (FCOT) for upside when it takes over direct management in March 2012. No change to our DPU estimates or dividend discount model-based target price of $0.99 (discount rate: 9.4 per cent).
With an improving portfolio, stable capital structure and a strong sponsor in F&N, we see no reason for its 35 per cent discount to book amid forward yields of 7 per cent. We see catalysts from early refinancing, the unlocking of value from AEI at China Square Central and improvements in occupancy and rentals.
NPI was up 10 per cent y-o-y on stronger contributions from Central Park, Caroline Chisholm Centre and Keypoint. Q-o-q, NPI was up 4 per cent as there were improvements at its Australian assets. Occupancy at KeyPoint also continued to improve for the ninth consecutive quarter to 86 per cent since the in-house team took over property leasing in Q2 2009.
Passing rents were stable at about $5 per square foot with limited exposure to higher rollover rents locked in at the 2008 peak.
China Square Central’s underlying occupancy improved 20 basis points, with recent leases renewed at $6.30-8.00 psf versus expiring rents of $6.30 psf and passing rents of below $6 psf. Continued improvements in occupancy and rentals on the back of more proactive management by FCOT and an upcoming Telok Ayer MRT station could position FCOT for upside when it takes over direct management following the expiry of the master lease in March 2012.
Asset leverage had been pared down to about 37 per cent after the divestments of AWPF and Cosmo Plaza. This entire amount ($745 million) will mature in 2012. With a high cost of debt of 4.3 per cent and prolonged low interest rates, FCOT could save in terms of interest following the refinancing of this debt. We estimate that a 50-basis point interest rate reduction could lift its DPU by 11 per cent.
OUTPERFORM
Retail Reits are expected to see positive rental reversions going forward, supported by the current positive consumer sentiment.
Frasers Centrepoint Trust (‘buy’, TP: $1.73) is expected to deliver a good set of numbers in the coming quarters, as reconstruction works at Causeway Point have passed the most crucial stage, with committed occupancy at over 99 per cent. In addition, the impending purchase of Bedok mall will act as a re-rating catalyst for the stock.
Mapletree Commercial Trust (‘buy’, TP: $1.05) should also see strong reversions in rental growth of about 10 per cent in the coming quarters, coming off from a first renewal cycle at its VivoCity retail mall.
S-Reits have collectively acquired about $1.9 billion of assets year-to-date, which should start contributing to earnings in the coming quarters.
After two months of relatively flattish distribution per unit, we believe Mapletree Logistics Trust (‘buy’, TP: $1.07) is poised to deliver a strong uptick in earnings momentum, boosted by recently completed acquisitions
FYI, yields for the above trusts are very decent and all three trusts have strong Tai Kors. F&N for Frasers and Temasek for the other two.
Frasers Centrepoint — 6.8%
Mapletree Commercial — 5.7%
Mapletree Log — 6.7%
We see relative value among certain smaller-cap S-Reits. Cache Logistics Trust (‘buy’, TP: $1.11), which currently offers a yield of over 8.0 per cent, is attractive, backed by transparent earnings structure and armed with a low leverage of 26 per cent, having the headroom to acquire further.
Frasers Commercial Trust (‘buy’, TP: $1.05), at a P/B of 0.6 times, is unjustified in our view, given that the yield-enhancing steps taken by management and plans to re-finance its expiring loans should result in future interest savings.
I’m glad someone sess value in FCT where I have a holding. Yields 6.77%.
This Temasek-related Reit invests in logistics facilities in the region. Its latest investment is in S Korea.
Its yield is 6.8%. While its last traded price is $0.92 and its last reported NAV is $0.85, OCBC recently came out to say that OCBC calculated that its revised NAV is $1.01 (also OCBC’s target price for the stock). Not a rich discount to the share price but pretty decent, given its Temasek credentials.
I might add it to my portfolio.
Ratings agency Moody’s Investors Service reiterated its ‘stable’ outlook on Singapore-listed Reits (S-Reits) for the next 12-18 months.
“We expect S-Reits to use their well-capitalised balance sheets to continue acquisitive strategies and assume they will fund potential acquisitions with a mix of debt and equity while maintaining leverage within targeted limits of 40-45 per cent”.
Starhill Global Reit should interest you.
DBS is retaining our ‘buy’ call for Starhill Global Reit following updates from management and the Hong Kong non-deal roadshow.
Starhill Global Reit’s unique value proposition lies in its prime retail offering and niche office exposure along the Orchard Road belt. FY11-12 yields of 6.9-7.3 per cent imply attractive 280 basis points spread over the risk-free rate, backed by the top class commercial assets in town and a reputable sponsor.
There is good earnings visibility going forward, led by organic growth potential and proactive asset enhancements. At current valuations of 0.7 times P/B NAV versus its commercial peers’ 0.8-1.3 times, valuations are attractive. At $0.73 target price, the stock offers 23 per cent total return.
BUY
Note I don’t own shares in this Reit yet. Nothing wrong with the numbers (the 6.9% is attractive and sustainable) but in times like this I would prefer its “big brother” to be an international name, not a M’sian cotporate, albeit a respectable name.
In today’s ST, Perennial China Retail Trust took out a full-page ad in colour in ST to extol the IPO’s merits.
Two pages away, ST carried a story headlined ” CapitaLand’s share dip linked to China”. In juz slightly smaller type face, the headline went on, “Poor showing due to concerns over firm’s greater exposure, vulnerability to policy changes”.
If I were Perennial, I’d ask ST for a refund. This headline sums up the thesis why this is an IPO to avoid.
There are some interesting Indonesian consumption patterns according to a recent report by Indonesia’s Kresna Securities.
It cited a survey by research firm MARS Indonesia saying that discounts and promotions are able to change 67% and 52% of window shoppers into buyers respectively even though they may not have been interested in buying at first.
‘Indonesian consumers are dominated by shop lovers and lifestyle shoppers, who accounted for 54.5% of total consumption in 20.
In my view, a locally-listed Reit that will benefit from these trends is Lippo-Mapletree Indonesia Retail Trust. It is a Singapore-based real estate investment trust with a diversified portfolio of income producing retail and retail-related properties in Indonesia.
Check it out yrself as I can’t say more. I bot some shares earlier this year.
Healthy financials: Gearing remains healthy at 30.2 per cent, well below the optimum level of 45 per cent. With no major refinancing needs till 2013, the group is in good financial position to make further acquisitions.
We maintain our ‘buy’ call, TP of $0.73. The improving office outlook and stabilised retail market should lead to further improvement in its Singapore portfolio that represents 60 per cent of its total revenue. We see relative value in SGReit with the stock trading at 0.7x P/BV and offering forward FY2011-2012 yields of about 6.9-7.3 per cent.
Don’t focus on rising NAVs.
Focus on their ability to service their debts and the options they have to refinance. The improvement in NAVs is a subset of these issues.
OCBC Investment Research, late last week wrote, We found a few common themes in the guidance given by office Reit managers. Firstly, most office Reits with Grade-A office assets expect negative rental reversions to bottom out by end-2011.
In FY2010, negative rental reversions were still prevalent in some Grade-A properties such as Six Battery Road and One George Street. One Raffles Quay and Suntec City also saw y-o-y declines in gross revenue contributions, but this is expected to turn around in 2011-12.
According to CB Richard Ellis (CBRE), Grade-A rents averaged $9.90 psf a month in Q4 2010, reflecting an increase of 10 per cent q-o-q and 22.2 per cent y-o-y. Read the rest of this entry »
Yield of 6.2% is decent, even though one can find reits with higher yields, even within its sub-sector,.
But it trades at 64.5cents, a large discount to its lasyed reported RNAV of 89 cents. There is room to gear up further given its gearing is 31%. In other words it doesn’t need to calls a rights issue to fund run-of-the mill acquisitions.
Better still rents along Orchard Rd are likely to go up further by another 3-5% yearly (no new supply) likely, analysts say. Remember Starhill generates two-thirds of its revenue from Ngee Ann City and Wisma Atria.
Kim Eng is bullish on Starhill noting that about 20% of its retail leases in Singapore are expiring this year and that so far, the rates of those leases are about 30 per cent below rentals in the fourth quarter of last year. Kim Eng sees a positive rental revision in the next two years.
Might buy some for myself. Better than keeping money with CPF.
Thoughts of a Cynical Investor 
