The property valuation is carried out and done by independent properties valuer.

Can we trust those "independent" valuer? A lot of those "independent" or quasi-government institutions only will realize they are wrong once a big scandal happens to them, otherwise it is just "business" as normal. Examples includes Arthur Anderson (Enron), Moody's, Standard & Poor's (CDO's) and many more to be named. I am highly suspicious that our local valuers have nudge the valuation north of 20% for most REITs.

This post has been edited by gark: Jun 8 2010, 10:16 PM

It depends on how one views on this.
A nudge or not, I don't know, even got a nudge at least must come from somewhere that is realistic based on the existing available paper and market condition, and transaction that had been done surrounding etc issue.

But we invested in reit primary looking on its yield and earning ability, not on how much the value is given.
Share price also behave towards its earning ability and not towards what is their worth.

That's why whether the properties is being revalued or not is not a concern for reit holder.

The concern for reit holder is always how much rental can get?
Is the lease is going to be renewed and rental rate being revised upwards or not?

This post has been edited by cherroy: Jun 8 2010, 10:23 PM

The problem is that REIT's consider a positive valuation of it's existing assets as an 'income' and not as a capital gain. This point is troubling for me, when somehow when I evaluate REIT's like a share, something is not right because EPS and PE ratio is then askew-ed. As most REIT's trade below BV ratio, have low current asset/liabilities and low cash is a bit troubling for me. Furthermore most REIT's raise cash by dilution is bad.

This post has been edited by gark: Jun 8 2010, 11:08 PM

gark,

How is the cash raising exercise bad if the cash are to be used to increase the fund's NAV? Is private placement worse than taking in more gearing?

We as reit holder always look at realised income figure only, as it is those realised income that enable reit holder to get a piece of distribution.

Any positive revalaution will register as income, but it is not a realised income, it won't boost the DPU.
The primary concern is always the quarterly or semi-annual distribution/dividend.

Market won't give a damn how much the revaluation is, as reflected by share price movement. But share price will shoot up, if the DPU is going higher and higher.

Reit gives at least 90% of their realised income, so the most left is 10% cash remaining, so low cash is the nature of it.
As you are not running a business in reit, you are just holding a property and collect rent only, there is little need to be in high cash position.

Why we like or want to invest in reit?
Because any profit made is distributed.

Unlike ordinary stock, company can withold forever their cash position without rewarding shareholders at all disregard the size of cash.
Also, with profit needs to be distributed, it minimise the chance of profit (realised income) figure being "cooked".

Reit is not as same as businesses.

There is no need for reit to raise cash unless for newer acquisition of properties, while newer acquisition of properties should increase the reit income in the future to offset the dilution part of story.
If not, the acquisition through dilution is not bringing benefit to the reit holders.

Axreit has been undergone 2x private placement, but it didn't dilute the DPU, instead it increases the DPU overtimes, through newer properties and more diversified.

Ok, thanks for the info, so far I have evaluated most of the REIT's, either they are not attractive enough or their evaluation is still too high, so I will take the wait and see approach. I am still avoiding those REIT's which buy back from their own company, I feel they might not be fair enough to their shareholders.

Is there any news when will the Sunway REIT(also the two other huge one that's coming soon) be out? When they come out, do you think the "revaluation" may make current REIT's price higher or lower?

Please advice. Thank you

sunway reit's ipo is set at july 8.

thanks man!
so what do you think? will that affect current reit's price?

Sunway woos REIT cornerstone investors
May 24, 2010
KUALA LUMPUR, May 24 — Sunway City may place out about a fifth of its planned IPO of a real estate investment trust (REIT) to cornerstone investors who have greater holding power for the shares, sources with direct knowledge of the deal said.

The country's sixth-biggest property company by market value is in talks with seven local funds in the hopes of getting some of them to become cornerstone investors in the IPO which is expected to raise around US$500 million (RM1.66 billion), the sources said.

The Sunway REIT, with a fund size of 2.78 billion units, is set to become Malaysia's largest when it is listed in the third quarter of this year.

The Sunway REIT offering comes at a time when companies elsewhere in Asia downsize or put on hold listing plans due to uncertain global market conditions following the fallout of the euro zone debt crisis.

Malaysia's most recent IPO debut saw Masterskill Education open sharply lower in the trading debut of its US$240 million IPO, hurt by euro zone turmoil and an overly rich valuation.

Sunway's planned REIT offering has received positive response from investors so far due to its size, steady income source and good growth prospects, a source said.

"This is something significant that investors would not want to miss. The interest is definitely there, the question is pricing," said the source.

The sources could not be named because they were not authorised to speak to the media.

The Sunway REIT will feature some 1.65 billion units for public subscription, of which 1.5 billion are for institutional and selected investors, the company said earlier this month.

"They are talking to seven funds, which consist of insurance funds, unit trust funds, government-linked investment companies, and a few pension funds," said a second source.

Sunway is looking to place out about one-fifth of the offering to cornerstone investors, one of the sources said.

Cornerstone investors normally commit to buy shares before a public listing and promise to hold them until a later date.

Sunway City declined comment.

The issue price of the Sunway REIT will be determined in a book-building process.

Earlier this month, Sunway City said it would receive 2.7 billion ringgit in cash and about 1.0 billion units in the REIT for the eight properties it will inject into the unit.

The properties, comprise of shopping malls, office towers, and hotels, have a combined market value of about RM3.7 billion.

Sunway City Group, controlled by Malaysian businessman Tan Sri Jeffery Cheah, will own about 38 per cent of Sunway REIT after the listing, which the company said may be completed mid-July. — Reuters

Sunway Real Estate Investment Trust (REIT)


Fund size of 2.78 billion units.



Based on the Sunway REIT’s net asset value per unit (NAV/unit) of 97 sen upon listing, its price over NAV (P/NAV) was estimated to be at about 1x (based on the assumed IPO price of RM1/unit for the institutional offering).



The REITs’ dividend yield was only expected at about 6.7% (based on forecast dividend per unit (DPU) of 6.7 sen), which was below the average 8.5% for other REITs........YES, A MISERABLE 6.7% DIVIDEND WHICH IS VERY MUCH LOWER THAN THE PRESENT LISTED REITS......IN FACT, IT'S THE LOWEST.


I think I will skip this Sunway REIT & concentrated on the other Malaysian listed REITS.

Increasing bumiputra property ownership. In this context, Pelaburan Hartanah Berhad will establish a Real Estate Investment Trusts (REITs) to facilitate Bumiputra investment in commercial and industrial properties and benefit from property appreciation

Wonder if this Govt linked REIT will be listed

If this specific for bumi-investment, dont think can list like normal in share market. How to make sure only bumi can buy & trade only ?

Furthermore, also already got GLC ARREIT, no need more competition

Hi all

Have been following this REITs thread here for some time now and would like to bring up a topic for advise/discussion:

Between direct property investmt and REITs, which provides better returns? Also taking into consideration effort (of maintaining a tenant etc) vs reward (yield).

I know some pros for REITs (not sure abt the rest..) that has been highlighted, but they don't really provide me insights of the actual experience.

REITs
-Experienced managers to handle the properties
-More liquid than a physical property
-A stake at larger assets

Anyone here who owns both rental properties as well as in REITs be able to share their opinions?

Investing into property directly makes more money, provided that you make sensible purchases on a rental yield basis. The reason is simple: leverage. You can borrow up to 90% to buy a property and rent it out. That vastly inflates the real return to you.

That said, I still invest in REITs myself. It's easier, more liquid and I hate dealing with tenants.

You can also leverage with REIT's if you want, since the yields are comparable. Also both property have capital gains. The only problem is getting the collateral to make the loan, you can pledge the shares? Or withdraw equity from your other properties? Anybody done this before, ie. 80-90% loans for REITs?

This post has been edited by gark: Jun 11 2010, 09:42 AM

I can tell from real experience, (residential properties)

Real rental properties are not easy to manage, quite troublesome sometimes, depended on your luck and quality of tenants.
Real cost after deducting expenses like maintenance fee, quit rent, assessment, repairing cost, the real return could be below 5-6% as well. A strate title already can cost you a few thousand buck.
Illiquid, sell a property may takes months or up to half to a year before actually receiving all the proceed from the sale.

Direct property investment good thing is that, the value of the property is depended on the property market itself, not like stock market sentiment, that could affect the reit price.
And you have total control on the property.

Good and bad for REITs and residential investing.
You can leverage in residential investing, the risk is there but less risky than common stock, illiquid as mentioned.
You cannot leverage in REITs (unless you take personal loan etc), very liquid but COCR is sometime less than residential investing?

You can leverage on reit by using margin account.

Personal loan is a big no no.